Section AQuestion 1

The 2017tax reform implemented the greatest changes in US cross-border and international taxation in decades. How do the changes interact? Will the reforms achieve their stated objectives?

Question 2The entity classification regime has played a large role intax planning since its adoption. How, if at all, would you change the regime?How is the 2017 tax reform likely to affect the use of the entity classification election?

Question 3To what extent is the United States converging, and to what extent diverging, from the views of other jurisdictions on international taxation? Discuss critically.

Question 4The US tax treaty network covers most of the jurisdictions with and in which the United States trades and invests and where US citizens live. Which three aspects of US treaties do you consider most important? Is the US approach in these areas consistent, and how, if at all, have these areas evolved over time?

Section BFor the purposes of this section, unless told otherwise, assume that the US corporate income tax rate is 20% and that all net corporate income is taxed at that rate. Assume further that the individual income tax rate is 15% for all income up to and including $40,000, 20% for amounts over $40,000 up to and including $100,000, 25% for amounts over $100,000 up to and including $500,000 and 35% for all income in excess of $500,000. The capital gains rate for long term capital gains is 10% for individuals in the 15%, 20% and 25% tax brackets and 25% for those in the 35% tax bracket. For all types of income, theUS statutory withholding rate is 30%.Unless told otherwise, assume that there is no income tax treaty in force between the United States and any other country referred to in the questions.All dollar amounts are in US Dollars unless otherwise indicated.Question 5Vermilion Software, Inc is a major developer of business to business software solutions, which it sells primarily in North America, the UK and Europe. It is a Delaware corporation headquartered in California. Development takes place in its Silicon Valley, California headquarters and in its operations in Pune, Dublin and Tel Aviv. Most of its patents, trademarks and other intellectual property are held by Vermilion Innovation (BVI) Ltd, a British Virgin Islands company. Sales in the UK and Europe are conducted by Vermilion Sales Ltd, a wholly owned subsidiary of Vermilion Software formed under the laws of England and Wales; sales in NorthAmerica are conducted by Vermilion Software. Sales services include advertising, branding and packaging of physical software and the maintenance of the websites used for the downloading of software.In 2018, Vermilion Software had North American sales of $50,000,000, of which $5,000,000 was in Canada. Vermilion Software made an annual payment of $1,000,000 to Vermilion Innovation and also paid Vermilion Innovation 3% of gross sales for the use of the intellectual property. Vermilion Sales paid 3% of its gross sales of £20,000,000 to Vermilion Innovation for the use of the intellectual property and paid Vermilion Software for the software using the group’s resale minus 5% transfer pricing policy.Assume that throughout 2018the British Pound was worthUSD 1.25.(a) What are the respective 2018 US federal income tax liabilities of the Vermillion group companies?(b) How, if at all, would your answer to (a) change if there is a treaty in force between the United States and the United Kingdom that is substantively the same as the 2016

US Model Income Tax Convention? What if the United States has such treaties in force with India, Ireland and Israel?(c) What approach may the US Internal Revenue Service take with regards to the arrangements outlined above?Question 6Radha Kapoor, an Indian national and a long-term resident of the United Kingdom, is a successful businesswoman with investments in various countries. She has a longstanding account with a stockbroker in New York City who has permission to purchase and sell securities without consulting her. During 2018, as a result of transactions in the New York account, Ms Kapoor realised gains of $250,000 and losses of $100,000 with respect to stock of US corporations and gains of $100,000 and lossesof $10,000 with respect to stock of foreign corporations whose shares are traded on the New York Stock Exchange. The stock of the US corporations had been held for 2 years; the stock of the foreign corporations had been held for 6 months.In addition, she received dividends of $50,000 from US corporations and $10,000 from foreign corporations whose shares are traded on the New York Stock Exchange. All the shares were owned by Ms Kapoor for 18 months at the time the dividends were received.Ms Kapoor also received interest of $10,000 from bonds issued by US corporations and interest of $40,000 from bonds issued by foreign corporations. All of the corporate bonds were publicly traded and purchased on securities exchanges in the United States. The dividend and interest payments were received by Ms Kapoor in London.Ms Kapoor spent 45 days in the United States in 2018and a similar number of days in the years preceding two years.(a) What is Ms Kapoor’s US federal income tax liability for 2018?(b) How, if at all, would your answer to (a) change if Ms Kapoor’s New York stockbroker could only act on specific instruction from Ms Kapoor?(c) How, if at all, would your answer to (a) change if Ms Kapoor received the dividend and interest payments in New York for reinvestment in the United States?(d) How, if at all, would your answer to (a) change if there was a treaty in force between the United States and India that was substantively the same as the 2016 US Model Income Tax Convention? What if there was such a treaty between the United States and the United Kingdom?(e) How, if at all, would your answer to (a) change if Ms Kapoor was present in the United States for 105 days in 2018, 150 days in 2017and 180 days in 2016?

Question 7Laurentian Investments Ltd (‘Laurentian’) is a company formed under the laws of the Province of Ontario that is managed and controlled in Canada. Laurentian raises capital from individuals and entities in Canada for investment in the United States. All of its investments in the United States are in the form of portfolio instruments.During 2018, Laurentian entered into the following transactions:1.Laurentian owns 1,000 shares of the voting common stock of Maryland Furnishings, Inc, a Maryland corporation engagedin the manufacture of high-end furniture for small children. The shares represent 10% of the outstanding shares of the corporation’s voting common stock. The shares do not pay dividends, but Laurentian expects them to increase in value and therefore intends to hold them long term.On 1 May 2018, Laurentian purchased, for $5 million, a corporate bond issued by Maryland Furnishings with a stated principal amount of $5 million, payable in 5 equal annual instalments beginning on the first anniversary of issuance and bearing interest at the rate of 3% per annum, payable quarterly on the last day of March, June, September and December of each year. The debenture was issued in registered form; interest and principal will be paid by cheque drawn on a US bank and posted by Maryland Furnishings to the owner of record.2.On 29 June 2018, Laurentian purchased, for $2.5 million, 25,000 shares of the voting common stock of Manhattan Financial Services, Inc, a New York corporation that provides accounting, payroll and other ‘back office’ services to financial institutions. The shares represent 10% of the outstanding shares of the corporation’s voting common stock. Following its usual practice, Manhattan Financial paid quarterly dividends of $0.50 per share in 2018.3.On 30 November 2018, Laurentian sold 10,000 shares in Great Western Shopping Centers, Inc, a Nevada corporation that owns and manages shopping centres in the western United States. The shares, which were purchased for $1 million in 2010, were sold for $5 million.4.On 17 December 2018, Laurentian purchased a debenture issued by National Bank of California, a Federally-chartered commercial bank with its principal office in Sacramento, California. The debenture, for which Laurentian paid $4.75 million in cash, has a stated principal amount of $5 million, which will be repaid in its entirety on the tenth anniversary of its issuance. The debenture bears interest at the rate of 3% per annum, payable quarterly on the first day of January, April, July and October of each year. The debenture was issued in registered form; interest and principal are paid electronically to the owner of record through the Federal Reserve Bank of San Francisco.