TABS Talk – June 2024

Many European companies operating in the U.S. underestimate their tax presence and its impact on Corporate Income Tax. If these companies have a nexus in the U.S., their Corporate Income Tax filing (1120F) is due by June 15. Often, European firms conduct U.S. business remotely to avoid the complexities of having a U.S. subsidiary. However, with increased AI and data exchanges between international tax authorities, U.S. tax authorities are scrutinizing these practices more closely.

European companies must be aware of potential tax obligations and consider filing Form 1120-F to claim deductions and avoid penalties if later found to owe U.S. taxes. Filing this form is crucial to preserve the right to deductions and to manage audit risks. Not filing can lead to significant tax consequences, especially if U.S. clients require W8BEN-E forms, indicating the European entity’s tax status and claiming treaty benefits to prevent double taxation.

To avoid tax issues, European companies should consider a “protective filing” of Form 1120-F to ensure they can deduct business expenses and comply with U.S. tax laws. This strategy helps manage potential tax liabilities and audit risks while maintaining compliance with international tax regulations.

On May 3, 2024, the DC Circuit ruled that the IRS has the statutory authority to assess penalties for willful failure to file Form 5471, reversing an earlier Tax Court decision. This form, required from U.S. persons (including citizens, residents, and entities) with interests in certain foreign corporations, is crucial for U.S. Corporate Income Tax filings, particularly for U.S. subsidiaries of European entities. Many subsidiaries were penalized $10,000 per instance in FY2022 for allegedly failing to file Form 5471 on time. Despite timely filings, taxpayers faced delayed responses to their abatement requests from the IRS, which awaited this ruling. With the DC Circuit’s decision, it is now even more critical for these subsidiaries to ensure timely filing of Form 5471. For further inquiries, please contact us.

The Department of Labor (DOL) has released a final ruling that will increase the salary threshold for exempt employees under the Fair Labor Standards Act (FLSA). Currently, the salary threshold for executive, administrative, and professional employees is set at $684 per week, or $35,568 annually. Effective July 1, 2024, this threshold will rise to $844 per week, or $43,888 per year. Additionally, the threshold is scheduled to increase again in January 2025.

What Does This Mean for You?

These changes may require you to pay overtime wages to employees who were previously exempt, among other FLSA regulations. It’s important to note that salary alone does not determine exemption status under the FLSA. Other criteria must also be met to classify an employee as exempt.

Are You Currently in Compliance with FLSA?

To ensure compliance with the updated FLSA regulations, it is crucial to review your current employee classifications and pay structures. For more information on the FLSA, potential compliance issues, and to conduct a review of your current practices, contact our HR department.

HR Update: USCIS Increases Automatic Extension of Certain EADs to Improve Access to Work Permits

Since our first article about this topic in 2022, check fraud has been a massive issue in the United States for many incoming European businesses and can be a culture shock for many. The Covid-19 pandemic has contributed to the decline of check use, but it is still a vital currency, and most businesses cannot afford to decline checks. TABS has come up with its top ten tips for avoiding check fraud.

While fraud is persistent in all walks of life, corporations are often a routine target for scammers. The United States contains the same trickery as Europe, adding one major factor: checks. Click below for all 10 tips!

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