Economic Substance Doctrine: Complying With U.S., European Union, Cayman Islands, Nevis, and BVI Guidelines

This webinar will review the economic substance doctrine from the perspective of the U.S., EU, and offshore jurisdictions. Our panel of global tax attorneys will explain how to comply with the U.S. economic substance rules, European directives, and similar requirements of other offshore locations, including the British Virgin Islands, Cayman Islands and Nevis.

Codified in 2010, IRC Section 7701(o), the economic substance doctrine continues to be a critical element of international tax planning. What constitutes economic substance, however, remains primarily defined by case law which purports, "Whether we respect a taxpayer's characterization of a transaction depends upon whether the characterization represents and is supported by a bona fide transaction with economic substance, … and not shaped solely or primarily by tax avoidance features… .” Frank Lyon Co. v. U.S.

Transactions not having economic substance and not disclosed could be subjected to a 40 percent penalty in the U.S. if reasonable cause and good faith do not exist. The penalty can be reduced if the transaction is disclosed on Form 8275, Disclosure Statement, and the position has at least a reasonable basis. A reasonable cause exception is not a viable defense from these penalties.

In addition to the U.S., other countries have their own directives concerning the substance of transactions. In 2016, members of the EU adopted the Anti-Tax Avoidance Directive to coordinate and harmonize taxation and to meet OECD recommendations. The directive includes rules concerning CFCs, hybrid mismatches, exit taxes, and more. Tax advisers working with multinational taxpayers must consider the potential impact of the economic substance doctrine abroad and in the U.S.

Listen as our panel of international tax lawyers from the U.S. and abroad discusses complying with the economic substance doctrine for businesses operating in the U.S. and overseas.