On January 1, 2019, Jair Bolsonaro was sworn in as the new President of Brazil. On October 28, 2018, Bolsonaro defeated Fernando Haddad of the Worker’s Party 55.1% - 44.9% in a run-off.

Bolsonaro’s election comes amid a tumultuous time in Brazil. Government corruption is a major problem with President, Dilma Rousseff getting impeached in 2016 and former president Luiz Inácio Lula da Silva in prison for corruption. Da Silva was the front runner in this year’s election before being sent to jail. Brazil is also facing a slumping economy and rising crime rates, which all likely had an impact on the election results as voters pushed back against the “establishment.”

Many are comparing Bolsonaro’s rise to that of President Donald Trump’s, as both were able to position themselves as strong outsiders rallying against the media and establishment politics. Bolsonaro has been quite vocal about how he plans to govern differently. Among his initiatives, Bolsonaro wants to reduce the size of the government, increase productivity, and reduce regulations.

Bolsonaro comes into power with some lofty policy goals he hopes to achieve. Three of the main goals for the new administration are pension reform, privatization, and tax reform. Pension reform is a touchy subject in Brazil as currently, many people retire in their 50s and receive generous benefits from the government. As Brazil’s next legislative session is about to get underway, politicians are already discussing proposals to tackle pension reform. While it is still to early to tell, it is likely that the government will try to raise the retirement age by at least a few years, which would save the government money.

Bolsonaro also campaigned on the promise of pushing for privatization. Currently, Brazil has 418 state-owned enterprises (SOEs) - more than any country in the Americas - though some are no longer in use. Additional privatization would open Brazil up to increased foreign investment, especially from China, which has been investing heavily in Brazil over the past few years. Bolsonaro hopes that moves to privatize can help improve the country’s infrastructure. Privatization is a controversial topic in Brazil, so it remains to be seen just how much progress Bolsonaro can make on this goal.

Tax reform is the third main priority proposed by President Bolsonaro. Brazil is known for having a complex and burdensome tax system, so a main priority would be simplifying the process. A few different proposals are being considered and it is unclear at this point which one will be the most politically popular or achievable.

On January 29, the United Kingdom (UK) House of Commons voted in favor of UK Prime Minister Theresa May renegotiating with European Union (EU) officials the “backstop” provision of the Brexit agreement.  The “backstop” provision would require the UK to remain in the EU customs union and single market until the issue of how to address the border between the Republic of Ireland and Northern Ireland is resolved.  Since the vote, an EU spokesperson has reiterated the position of the EU that the current proposed agreement is non-negotiable.

A majority of members of the Conservative party were joined by their coalition partners with the Democratic Unionist Party of Northern Ireland, as well as a few Labour party members, to pass the amendment by a vote of 317 to 301.  Specifically, the amendment seeks for the backstop provision to be renegotiated and replaced with “alternative arrangements to avoid a hard border.” May has until February 13 to return to Parliament with a renegotiated deal.

Interestingly, a majority of Parliament also voted in support of an amendment stating the UK would not leave the EU without an agreement in place. In the vote of 318 to 310, almost all Labour party members were joined by 17 conservatives and members of third parties in passing the amendment. All other amendments including one that would have delayed Brexit were defeated.

The clock continues to click as the Brexit date of March 29 approaches.  It is yet to be seen if the EU will make any concessions on the current agreement, as the other 27-member states have been uniform in taking a strong position with the UK.  We have seen recently a number of member state legislatures pass measures that direct their respective governments to develop plans for a no-deal Brexit possibility. However, there is still a strong desire within the EU and UK governments to reach a deal.

As new Brexit events emerge, we will keep you apprised.  While there remains uncertainty revolving around Brexit regarding the impact on workforce mobility, we do know that much will remain the same in the short-term for UK citizens who work and reside in the EU, and vice versa.

On Friday, January 25, 2019, President Trump and Congressional leaders reached a deal to end the partial government shutdown. At 35 days, the partial government shutdown is now the longest in U.S. history. The deal signed by President Trump would reopen the government for three weeks until February 15, 2019. This temporary deal does not include any new money for a border wall and is meant to give Congressional leaders more time to negotiate a long-term solution.

While federal workers are back to work this week, the threat of another possible shutdown looms. On January 16, 2019, President Trump passed legislation that calls for furloughed workers to recieve back pay once the government reopens. Still, it is likely to take up to a week for furloughed workers to receive back pay (and maybe longer, depending on the agency).

Despite the shutdown’s end, the economic impact will likely be felt for months to come. The non-partisan Congressional Budget Office (CBO) released a report on January 28, 2019, entitled “The Effects of the Partial Shutdown Ending in January 2019” which outlines the expected economic impact of the shutdown. CBO estimates that the five-week shutdown has cost the U.S. economy $3 billion that it will never recover. The CBO has also lowered its projection for Q1 2019 GDP growth by 0.02%.

After the government reopened, both Democrats and Republicans have expressed optimism about reaching a funding deal before the February 15th deadline. If Congressional leaders cannot reach a deal, it is possible that President Trump will try to take executive action to secure funding for a border wall. Any such action would undoubtedly lead to multiple lawsuits from Democrats challenging the President’s authority to redirect funding to build a wall. If a deal is not reached by February 15, 2019, the U.S. government will once again experience a partial shutdown. Worldwide ERC® will be sure to keep you up to date as negotiations progress.  

As the shutdown dragged on, the operations of important federal agencies such as the IRS, Department of Housing and Urban Development (HUD) and the Environmental Protection Agency (EPA) ground to a halt. The shutdown created chaos last week at major American airports as hundreds of air traffic controllers missed work. Government shutdowns are costly and impede business. We have yet to measure the full effect of this shutdown’s impact, but in short, having the full U.S. government open again is good news for the mobility industry.

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The United States (U.S.) has experienced many policy changes since the Trump administration came into power in January 2017. This can specifically be seen in the trade realm and actions toward China and the European Union (EU). The administration has both imposed and threatened tariffs with both the EU and China, making these two regions important to watch closely in the coming year.

While the administration has taken trade action with a few countries, they have shown specific interest in the U.S.-China relationship and ensuring that any unfairness or unreasonable behavior on China’s part is mitigated. In an attempt to put the U.S. and China on equal footing, the administration has imposed three rounds of tariffs on Chinese goods exported to the U.S.  The total of all three lists equals about $250 billion worth of goods, with the most recent round starting as a 10% tariff with the promise to increase to 25% in 2019. Following a productive meeting with President Xi Jinping in Argentina at the G20 Summit, President Trump granted a 90-day delay in the tariff increase from 10 to 25% to allow time for Chinese and U.S. trade negotiations. If the U.S. and China are not able to reach an agreement by the 90-day deadline, the tariffs will then be raised to 25%. While the United States Trade Representative (USTR, the United States government agency responsible for developing and recommending United States trade policy to the President) has allowed the opportunity for a product exclusion process for the first two lists of tariffs, an exclusion process has yet to be seen for the third list. USTR continues to face Congressional pressure to allow for an exclusion list, but there is some concern swirling over reporting that it seems unlikely one will be put in place. While USTR has received many requests for exclusions from the first two tariff lists, they have granted little exclusions in December 2018. USTR is said to be facing additional delays in granting exclusions because of the recent government shutdown and furloughed employees.  

While many U.S. companies and consumers have felt the impact of the imposition of these three lists of tariffs, the specific desired outcome has not been made clear by the administration. It is easy to assume that the intent is to move manufacturing out of China and back to America to create more U.S. jobs, but no intention has been indicated as definite by the administration except to change Chinese behavior. This uncertainty has left American businesses and consumers wondering and hopeful for clarity. While the impact of these tariffs is undeniable for American consumers and businesses, the administration seems steadfast in their efforts to transform Chinese behavior and continue to believe that this strategy is the best way to achieve this. This assumption is strengthened by the report update released by the United States Trade Representative Robert Lighthizer on November 20th, 2018 stating that China has not changed any of the behavior USTR previously deemed as unfair practices. 2019 promises to be an action-packed year in the trade realm, and specifically for the U.S.-China relationship.

The Trump Administration has also taken trade action with the EU specifically regarding the importation of cars from the EU into the U.S. In May of 2018, the Trump administration started a Section 232 investigation of importation of auto parts and vehicles based on whether or not they pose a threat to U.S. national security. The administration threatened to impose a 25% tariff on auto imports leading up to a July meeting between President Trump and European Commission President Jean-Claude Juncker. Following this July meeting, a joint announcement was made that both parties would hold off on further tariffs while working toward a bilateral trade agreement. The administration has also felt Congressional pressure not to implement these Section 232 auto tariffs which would more than likely resurface should a tariff threat from the administration remerge. With the recent news that General Motors would be closing some of its plants and cutting jobs, President Trump stirred up the topic of auto tariffs once again on Twitter, fueling nervousness. While the U.S. trade future with China and the EU are uncertain, many of these major decisions and changes are likely to be determined in the coming year, leading up to the next presidential election.

The EU and China are two important markets for workforce mobility, and the relationship between the U.S. and the countries within the EU and with China has a direct impact on the decisions of companies as to where to operate and locate facilities and offices. We are, therefore, likely to see shifts in business practices, immigration policies and, ultimately, workforce mobility as a result of the negotiations on trade and tariffs.

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At the moment, it’s hard to say what will happen between now and the looming Brexit deadline of 29 March 2019.  One thing that is clear, however, is that “the impact of a hard Brexit or any withdrawal of the UK from the EU will have both direct and indirect consequences on workforce mobility,” as Worldwide ERC® President and CEO, Peggy Smith, SCRP, SGMS-T noted in a recent post on the subject.

One of those consequences could very well be an increasing number of commuter assignments, particularly within Western Europe. Long before the Brexit referendum, the use of flexible mobility programs in the face of changing employee demographics, family and business needs was steadily and rapidly growing.

AIRINC’s most recent Mobility Outlook Survey (2018) reports that “54% of companies anticipate an increased demand for cross-border mobility this year. The types of mobility are not all more of the same, though; companies continue to expand the way in which cross-border mobility is defined. The trend remains for companies to expand the range of mobility options available to meet different talent needs.” It goes on to note that “33% of companies plan to add a business traveler policy to their offerings this year, while 23% will add a policy for commuters, and 20% of companies expect to formalize their international one-way transfer approach.”  The report further indicated that 30% of respondents anticipate an increase in commuter assignments within the next year.

There are a number of different things that define a commuter assignment, including its overall duration, how far an employee travels and how many days he or she remains in the host location for work each week. EU law currently defines cross-border commuters as those who work in one EU country but live in another, and return at least once a week, if not more frequently.  

Aires’ Pulse Survey – Commuters, conducted last May, confirmed that there seems to be no clear-cut definition of commuters at present, but respondents cited “living in the work location Monday through Friday” most frequently. In spite of wide variances and scenarios that create different types of commuters, there is one element that seems to be consistent: a large majority of companies report that their management and tracking falls under the global mobility umbrella. In the Aires findings, 61% of its participants indicated commuters are handled within the overall mobility function.

There are multiple reasons for both employers and employees to deem commuter status more appropriate, convenient or appealing than a traditional or short-term assignment, or a permanent move. For employers, the types of skills needed, for how long and in which locations factor heavily into the decision. Employees tend to place considerable weight on their personal financial and lifestyle implications, the impact on the careers and/or the income support of a spouse or partner; a possible need for elder or child care, or the current ages and educational status of dependents when deciding whether uprooting is right for them.

On 28 December, 2018, the Internal Revenue Service clarified earlier informal guidance concerning the extent to which businesses may deduct charitable contributions that result in the business receiving state or local tax credits.  See Rev. Proc. 2019-12.  

The issue stems from the government’s attempts to stymie high-tax states that have attempted to “work around” the limit imposed on individual deductions for state and local taxes by the 2017 Tax Cuts and Jobs Act (TCJA).

The TCJA limits individual itemized deductions for all state taxes (income, property, sales) to $10,000, beginning in 2018.  Under prior law, such deductions were unlimited.  The new limitations adversely affect taxpayers in high tax states.  A number of such states have reacted by considering or enacting provisions that would effectively convert the taxes to forms of levies that remain fully deductible.

The primary focus of “workaround” legislation has been to create state or local charitable entities to which individual taxpayers may contribute.  Taxpayers get an income or property tax credit for the contributions.  The states maintain that the contributions are fully deductible for federal income tax purposes as charitable contributions.  New Jersey’s law includes the charitable contribution workaround strategy, as do New York, Oregon, and Connecticut.  The effect is to create a full federal deduction for the taxes by converting them to charitable contributions.

The IRS responded with proposed regulations denying most such deductions.  The proposed regulations address not only state and local charitable organizations, but all charities, and hold that any time a tax credit is given in return for a contribution, the deduction for the contribution must be reduced by the credit.  An exception is included for credits that do not exceed 15% of the contribution.  Contributions that result in a dollar-for-dollar state tax deduction (as opposed to a tax credit) are also permissible.  

However, questions rapidly arose as to the treatment of such contributions made by businesses, as opposed to individuals.  

Under proposed regulations issued in November 2018, the Washington State real estate excise tax on the transfer of property would apply to the amount of debt assumed by the grantee whether or not the grantor was personally liable on the debt.

Under current Washington state law, a transfer of real property subject to an underlying debt is not subject to real estate excise tax, to the extent the grantor has no personal liability for the debt.  For example, if an individual sells property encumbered by a debt of $200,000 for $100,000 plus assumption by the buyer of the debt, the transfer tax only applies to the $100,000 of cash consideration if the debt assumed is secured by the property but is not a personal liability of the seller.  

The proposed regulation would change that rule, so that the consideration for transfer tax purposes is the full $300,000.

Whether or not the proposed regulation will be adopted is unclear.

If the proposed regulation is adopted, it will dramatically increase the real estate transfer tax on some transactions.   Although borrowers for home mortgages are typically personally liable for the mortgage, that is not always the case, and the proposed regulation could affect the cost of some home sales.

Recent court decisions highlight an issue with respect to computation of the penalty for willfully failing to file a report of foreign financial account.  The difference in the applicable penalty can be substantial.
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Schedule B of the U.S. Form 1040 tax return includes an often-overlooked question as to whether the taxpayer had signature authority over any foreign financial account, such as a bank or securities account.  Many U.S. expatriates working in foreign countries undoubtedly have such accounts, as do numerous foreign nationals residing and working in this country. Indeed, the relevant accounts include even accounts in foreign branches of U.S. banks, if the account is held by a U.S. person.  If the aggregate amount of such accounts exceeds $10,000 at any time during the year, the taxpayer is required to file a separate Treasury Department Report of Foreign Bank and Financial Accounts (usually referred to as the “FBAR”) by April 15 of the following year.

The penalty for failing to file is severe; even a non-intentional failure is subject to a penalty of up to $10,000, while the penalty for a willful failure can be the greater of $100,000 or 50% of the amount in the account.  Moreover, the penalty can be applied to each account not reported, and for each year that no report was filed.

Recent cases have differed on the maximum amount of the penalty for a willful failure to report.  Although most taxpayers who do not report do so out of ignorance, and do not consider the failure to be willful, courts have tended to expand the definition of willfulness, which includes reckless disregard of the filing requirement, to include cases in which taxpayers whose returns were prepared by others knew of the accounts but failed to review the return to confirm that they were disclosed.  Consequently, there have been increasing instances of application of the harsher penalty.

Four recent cases disagree, however, as to the allowable amount of the penalty.  

Currently, the statute says that the maximum penalty is the greater of $100,000 or 50% of the amount in the account.  However, prior to its amendment in 2004 to state the penalty as above, the statute said the maximum penalty was the amount in the account, “not to exceed $100,000.”  Treasury regulations under the earlier statute adopted the $100,000 limitation.  The difference in those standards can be substantial.  For example, if an account contains $500,000, the penalty under the current statute could be as much as $250,000, while the penalty under the earlier statute and regulations would be limited to $100,000.

This post updates Worldwide ERC®’s January 15 report on the effect of the current government shutdown on the 2018 tax filing season.

On the afternoon of January 15, the IRS released an updated contingency plan under which an additional 35,000 IRS employees will be recalled.  See the full plan.  It also said it would waive underpayment penalties for some taxpayers who are under-withheld due to confusion as to the effect of the 2018 tax changes.

The new contingency plan calls for some 46,000 IRS employees to resume their duties, most of them involved in the processing of tax returns and refunds.  Previous plans had called for just under 10,000 such employees.  All will work without pay during the government shutdown but will eventually be paid once the shutdown ends.  Some of the recalled employees also will assist with such activities as criminal investigations, information technology, collection, and other IRS programs.  They will not be initiating new investigations or cases, however, only assuring that existing matters are not compromised by delays due to the shutdown.  Some 57.4% of the total IRS workforce of about 80,000 will be working.

This is welcome news for taxpayers, who will have more assurance that tax filing processes will proceed on a timely basis.  In addition to filing and processing activities, IRS call sites will be staffed to answer taxpayer questions, but only those relating to the new tax law.

Responding to numerous questions about the applicability of penalties, the IRS on January 16, 2018, said it would waive some underpayment penalties.  See IR-2019-3.  

With a partial shutdown of the U.S. government that includes the Internal Revenue Service in its fourth week with no end in sight, the Treasury Department has taken steps to assure taxpayers that vital tax filing season activities will not be disrupted.  
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Although only 12% of IRS employees are working, the IRS said it will nevertheless begin accepting and processing tax return filings on January 28, 2018.  And according to statements on January 7, 2018, the office of Management and Budget has reversed guidance from previous government shutdowns and authorized IRS to pay refunds due.  

IRS has begun recalling some of the estimated 20,000 additional employees who will be needed to implement the filing season.  However, it is not unlikely that some disruptions will occur despite the agency’s best efforts.  This is the first filing season under the Tax Cuts and Jobs Act (TCJA), which made numerous changes to tax rules applicable to individuals, and the shutdown has caused a delay in implementation of new IRS protocols designed to take those changes into account.  

Tax practitioners worry that despite the availability of refunds, many return filers are badly unprepared for changes to those refunds.  Because the withholding tables were substantially changed during 2018, and new Forms W-4 were provided, many taxpayers undoubtedly received more take-home pay during the year and will be surprised when they have a smaller refund, or actually owe tax, if they did not take the changes into account.  According to an H&R Block survey, 47% of taxpayers think the TCJA will result in larger refunds, although 45% did not know what information they needed to determine their correct withholding allowances and 27% thought revised Forms W-4 were sent to the IRS rather than to employers.  Unfortunately, not only are refunds likely to be smaller than expected, there will be some taxpayers who not only get no refund, but owe substantial taxes.  These problems will likely be exacerbated by the unavailability of IRS assistance through telephone and walk-in services during the shutdown, and by the fact that IRS professional and public communications are also shut down.  

As a result, Worldwide ERC® members should expect a substantially higher incidence of questions from transferees about taxes, their W-2’s, and their gross-ups.  

The IRS has also reopened its income verification service, which allows financial institutions and their customers to obtain tax transcripts necessary to process mortgage and other loan applications.  But it remains unable to engage in many other activities, including audits, appeals, and collections.  Correspondence from taxpayers is simply piling up because IRS is unable to respond during the shutdown.

On Tuesday, January 8, 2019, President Trump gave a primetime address to the nation on immigration amidst one of the longest running federal government shutdowns. Immigration policies – specifically, the funding for a wall at the Mexico-U.S. border – are at the center of the ongoing government shutdown. Unable to convince Congressional Democrats to give him funding for a border wall, President Trump scheduled a television address to gain support for his position that there is a “humanitarian crisis” at the U.S. southern border.  
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Following President Trump’s address, Speaker of the House Nancy Pelosi and Senate Minority Leader Chuck Schumer answered with the Democrat response. Pelosi and Schumer hit back firmly at President Trump for creating a “manufactured crisis” and for inflicting harm on the 800,000 federal employees who are furloughed without pay.  

In December, President Trump initially signaled he would sign a spending bill agreed to by the Senate but then made funding for the wall a requirement.  On January 3, 2019, the new 116th Congress was sworn in with Democrats taking control of the House. That evening, the Democrat-controlled House passed the same legislation that would open the government without funding for a border wall. President Trump remains steadfast that he will not make a deal without border wall funding. Democrats are equally adamant they will not agree to the funding.  

While the current conversation is largely focused on undocumented immigrants, it is important to remember what happened during the last government shutdown in March of 2018. Last March, President Trump tried to use a similar piece of must-pass legislation to extract $25 billion for his border wall. Democrats refused to accept this deal without a permanent solution for the 1.8 million young immigrants under the Deferred Action for Childhood Arrivals (DACA) Program. President Trump and Congressional Republicans would only offer a temporary extension to the DACA Program, leaving these immigrants in limbo and allowing DACA to be used as a bargaining chip in future negotiations. The Trump Administration did not want to accept a permanent DACA fix because they are also working actively to crack down on legal immigration.  

With no end for the shutdown in sight, President Trump is looking at issuing a national emergency order at the southern U.S. border to try and redirect funds to build the wall. Any such action would likely lead to legal challenges, as it is unclear if the president can take this type of action.    

The impact of the government shutdown continues to grow more severe as it drags on.  The real estate sector could be affected by both the Department of Housing and Urban Development (HUD) and the Environmental Protection Agency (EPA) being unfunded. This could lead to delays in new loans being approved and will impact environmental regulatory programs. The IRS is currently unfunded, which will lead to a delay in the agency processing tax refunds. Worldwide ERC® will continue to keep members updated on the status and impact of the government shutdown.

The recent box office hit and best-selling novel Crazy Rich Asians might be the closest insight some Western business people have to what doing business in Asia may be like. But if your company is looking to establish a Hong Kong headquarters this year, don’t rely on Hollywood to prepare your mobile employees. Here are four things your remote assignees need to know about Hong Kong’s business culture nuances.
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Cosmopolitan Meets Traditional. Often dubbed the Wall Street of Asia, Hong Kong is a fascinating mix of cosmopolitan sophistication coupled with centuries-old traditions. “This cosmopolitan island creates a fascinating cultural fusion, blending the Asian heritage of Buddhist temples and ancient Walled Village with Western innovation,” says Sharon Schweitzer, J.D., founder of Protocol & Etiquette Worldwide. Behind the fast pace and cosmopolitan beauty is a deeply held respect for hierarchy rooted in Confucianism. “Confucianism is a system of behaviours and ethics that stress the obligations of people towards one another based upon their relationship,” according to Commisceo Global’s Hong Kong Guide. “Confucianism stresses duty, loyalty, honour, filial piety, respect for age and seniority, and sincerity.  These traits are demonstrated by the Hong Kong Chinese in their respect for hierarchical relationships.”

Relationships Matter. While family is important, and many Hong Kong businesses are family owned, a family connection is not a must-have to do business here. What is necessary is a commitment to invest time in building a personal and business relationship that will be longstanding. “The Hong Kong Chinese take a long-term view of business relationships,” the guide notes. “Once you have begun to work with a Hong Kong businessperson, it is important to maintain the relationship.”

Be patient as you build relationships. Make appointments in advance and confirm them. Come well prepared, but don’t be surprised if discussions and decisions take a while. Expect small talk and lots of questions, sometimes even personal ones. Don’t get agitated or show impatience; give your colleagues time to think things through.  Don’t feel compelled to fill silence with words.

Effective Communication. For the 7 million plus residents of Hong Kong, 95 percent of whom are Chinese, Cantonese is the most common dialect spoken. But in business circles, English is typically spoken. “English is the language of the business and service industries; hotel employees, many urban Hong Kong residents, most young people and shop and service personnel understand and speak it to some degree,” notes the Commisceo Global guide.

That said, accepted business courtesy is to print business cards with Cantonese on one side and English on the other. And here, appearances – even of business cards – matter. Be sure yours are in good condition, clean of handwriting, and even consider using a gold ink on the Cantonese side. Even though English is commonly used, trying your hand at learning some Cantonese phrases will be much appreciated by your Hong Kong associates.

The California Franchise Tax Board has proposed changes to its regulations that would, among other things, consolidate the five forms currently in use to implement (or avoid) withholding on sales of California real estate by nonresidents into one form.  See the proposal.
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In 1990, California was the first of what are now some 16 states that impose withholding on sales of real estate by nonresidents.  The statutes are modeled on the federal Foreign Investment in Real Property Tax Act (FIRPTA).  

Effective July 31, 1990, Sections 18662 and 18668 of the California Revenue and Taxation Code imposed withholding of 3 1/3% of the sales price of a California real estate property interest by a nonresident individual or by a corporation that does not have a permanent place of business in California. A corporation has a permanent place of business in California for this purpose if it is a California corporation, or is registered to do business in California, or maintains and staffs a permanent office in California. In 2002, the statute was amended to apply also to resident individuals, who were made subject to it beginning with escrows closing after December 31, 2002.

Property sold for $100,000 or less is exempt. Individuals are exempt if they are selling their principal residence. A change in the law in 2005 made such individuals exempt even if they do not meet the two-year ownership and use rules of section 121 of the Internal Revenue Code, if the property was last used as their principal residence. There is also an exemption if the seller certifies that there is no gain on the sale by completing and filing Forms 593C and 593E.

In 2006, the California law was again amended to eliminate chronic over-withholding in cases in which there is a gain, but the tax would be considerably less than 3 1/3% of the sales price. Under the amendment, at the election of the seller, withholding may be limited to an amount computed at the highest tax rate times the gain on the transaction.  The seller must certify to the amount to be withheld under penalties of perjury.  

Form 593 must be filed with the Franchise Tax Board.

The Tax Cuts and Jobs Act (TCJA) imposed a $10,000 limit on the federal deduction for state and local taxes.  Since that time, a number of states have enacted laws intended to circumvent the limitation.  Initial efforts typically involved setting up or designating charities to which contributions could be made and for which the contributor would receive a corresponding income tax credit.  Connecticut, New Jersey, New York, and Oregon have enacted such laws, with several other states considering them.  
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The Internal Revenue Service reacted by proposing a regulation under which the federal charitable contribution deduction would be limited to the net of the contribution minus the tax credit.  The IRS received over 1,500 comments on the regulation, and a hearing was held in early November at which speakers both criticized and supported the regulation.  

In addition, four states (Connecticut, Maryland, New Jersey, and New York) sued the federal government in the U.S. District Court for the Southern District of New York alleging that the TCJA limitation is unconstitutional.   The federal government moved to dismiss the suit in early November, arguing that the states lacked standing and failed to state any valid constitutional violations.  The states have now responded with a December 14, 2018, brief alleging that the limitation is like “a gun to the head” forcing them to lower taxes and cut state programs.  Opinions in the tax community are divided as to likely outcomes of the lawsuit, although the majority believes it is unlikely to succeed.

A second type of workaround has garnered less attention but is increasingly being adopted by additional states.  

In addition to the charitable contribution workaround, Connecticut enacted a law that would impose an optional 6.99% entity-level tax on pass-through businesses, with a corresponding credit at the individual owner level.  The result is a tax fully deductible by the business at the federal level, combined with a reduction of the individual’s state taxes.  

New York enacted a somewhat similar provision that would allow employers to elect to pay a tax on wages of their employees exceeding $40,000, combined with a corresponding tax credit at the individual employee level for a percentage of the tax paid by the employer.  As of early December, some 260 businesses in New York had opted into this system.

H.R. 7358, introduced on 20 December, 2018 by Representative Holding (R. NC) would fundamentally change the taxation of Americans who are bona fide foreign residents.  
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The bill, which would implement a change long sought by groups such as American Citizens Abroad, would allow such foreign residents to elect to be taxed only on their U.S. sourced income, like non-resident foreigners.  Currently, all U.S. citizens are subject to U.S. tax on their worldwide income.  For the bill, see https://www.congress.gov/bill/115th-congress/house-bill/7358/text.

Although the Tax Cuts and Jobs Act (TCJA) moved the U.S. tax system toward residency-based taxation for corporations, it did not change the citizenship-based tax system for individuals.  The new bill seeks to do so.

Under the bill, Americans who met the current rules for electing the section 911 foreign earned income and housing exclusions would be allowed to elect to exclude all foreign earned income and unearned income from their U.S. taxes.  A citizen with a foreign tax home who certifies full compliance with U.S tax laws for the previous three years, and who is a bona fide resident of a foreign country for an uninterrupted period capturing a full tax year, or who is present in a foreign country for at least 330 days during a tax year would be eligible.  

The proposal represents an evolution of numerous prior versions of individual residency-based taxation (RBT) that have been urged by American Citizens Abroad for several years.  Previous versions would not have been acceptable to the mobility industry for a number of reasons.  Early versions would have repealed section 911, required five years of overseas residency in order to elect the RBT system, and required those electing the RBT system to get a departure certificate from the IRS, calculate the value of U.S. assets and sometimes pay a departure tax similar to that faced under section 877 by taxpayers who renounce their U.S. citizenship.  Subsequent versions would have retained section 911, but still contained the five-year and departure tax requirements.  Although retention of section 911 was a step forward, the overall proposal did not improve the taxation of U.S. workers assigned abroad by their companies.

The new proposal is essentially an extension of section 911 to all foreign income, and without the current section 911 cap on the income that may be excluded ($105,900 for 2019).  As such, it would save expat workers significant U.S. taxes, to the benefit of their U.S. employers.  Although the proposal does not explicitly exclude foreign housing costs, it appears that those costs would also remain excludable under the current section 911.  That is because section 911 provides separate elections to exclude foreign earned income and foreign housing.  U.S. expats would elect the RBT regime for income, and section 911 for housing costs.

Companies considering moving employees in Europe should be aware of very favorable tax provisions that exist in Luxembourg.  The country has several provisions designed to attract highly skilled workers and incentivize their companies to move them there.
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Since the introduction of circular 95/2 in 2011, amended most recently in 2014, the country has allowed substantial deductions to companies that hire qualified and specialized employees who move to Luxembourg, and excluded those costs from the income of the employees.  These employees, known as impatriates, are individuals who had been working for a company from an office outside Luxembourg who are moved there, or who become tax residents after a company operating in Luxembourg hires them, so long as the employees were not Luxembourg tax residents within the last five years, or live less than 150 kilometers from the border.

The circular includes conditions concerning the qualifications and salaries of eligible employees.  The company must have at least 20 full time employees.

So long as these conditions are met, the company is entitled to a very generous list of deductions for costs incurred in connection with moving the employee to Luxembourg.  These include moving costs, housing costs for a new residence in the country, school fees, tax equalization expenses, travel expenses in some circumstances, the cost of an annual trip home, and others.  In addition to being deductible by the employer, none of these costs is considered income to the employee.  The tax advantages are available for a five-year period following assignment to Luxembourg.

Companies who move qualifying employees to Luxembourg are eligible to take advantage of favorable relocation provisions.

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French Finance Minister Bruno Le Maire announced on 17 December, 2018, that France will begin taxing digital services on January 1, 2019.

The tax will be paid by large digital companies.  Le Maire specifically mentioned Google, Apple, Facebook, and Amazon, but other large digital service providers would also be affected.  The announcement did not include important details of the new tax, which will be decided upon later in December.  

It is expected that the tax will resemble the proposal from the European Commission, which would amount to 3% on revenues derived from digital activities in which users play a role in value creation.  The EU proposal would apply to companies with annual revenues of 750 million euros and total annual revenues from EU digital activities of more than 50 million euros.  However, as noted, details of the proposed French tax are not yet available.

The government said that these companies pay, on average, about 14% less in tax than domestic companies, and one aim of the tax is to level the playing field.  

The announcement comes as something of a surprise, since France had previously said it would wait until March for other EU finance ministers to agree on a digital services tax before France would take action.  

It is unclear what impact the tax would have on consumers, or how broadly it would apply.

On 14 December, 2018, the U.S. IRS provided new optional standard mileage rates for use of an automobile for business, charitable, medical, or moving purposes during 2019.  See Notice 2019-2, and Announcement IR-2018-251.  

The new business mileage rate is 58 cents per mile, up from 54.5 cents per mile in 2018.  The rate for medical and moving use is 20 cents per mile, up from 18 cents per mile in 2018. The rate for charitable use is set by statute, and remains at 14 cents per mile.

The Notice also covers the impact of changes made by the Tax Cuts and Jobs Act (TCJA) that affect deductions for automobile use.  The IRS had also noted these impacts in a Notice issued earlier in 2018, see Notice 2018-42.

The TCJA suspended the deductions for miscellaneous itemized deductions and moving expenses, through 2025. Previously, there was an allowance for an itemized deduction of miscellaneous business expenses by individuals, to the extent those expenses exceeded 2% of adjusted gross income.

Worldwide ERC® members with business travelers who are incurring unreimbursed travel costs, such as automobile use, will need to determine whether to supplement tax assistance to take account of those costs that are no longer deductible. Note that if a company does reimburse automobile costs at the standard rate of 58 cents per mile, those reimbursements remain not taxable.

Companies will also need to consider how to handle automobile use by employees who are moving. Although many will still choose to use the 20 cents per mile rate for reimbursement, those costs are now taxable and subject to gross-up.