Internal Revenue Code (IRC) Section 1031 allows nonrecognition of gain or loss where property held for investment or for productive use in a trade or business is exchanged for like-kind property held for the same purpose. An issue arising under Section 1031 involves multiple owners of a real estate business entity holding one or more investment properties, where some owners want to maintain their investment while others want to cash out their investment. One common technique when the owners want to go their separate ways with investments is for the entity to redeem the interest of the member in exchange for an undivided interest in the property (a so-called “drop-and-swap”). Thereafter, the entity and the former owner join in the sale of the property to a buyer. Following the sale, the former owner can direct its share of the sale proceeds to a qualified intermediary to be reinvested in like-kind property without recognizing gain.

Read more: California's Changing Approach to Like-Kind Exchanges

The Italian legislator, with Budget Law for fiscal year 2017, introduced a special tax regime tailored for individuals who transfer their tax residence to Italy. Such a regime - entered into force on the 1st of January 2017 - is indeed very attractive for high net worth individuals, irrespective of their working status.

The substitutive flat tax and its requirements

The special regime provides for an optional flat taxation on foreign-source incomes and gains, instead of the ordinary progressive tax rates, under the terms as set forth by the law.

The option for a substitute tax on foreign-source income and gains is available to individuals, both Italian or foreign nationals, who obtain the Italian tax residence, provided that:

  • The individual shall have not been resident for tax purposes in Italy for at least 9 out of the past 10 years before the first year of benefit of the option.
  • The eligible taxpayer shall opt for the regime through the annual tax return, in which it must be detailed that the individual may be qualified for the regime. The individual may also obtain a preliminary green-light from the tax authorities by a positive ruling (so-called interpello).

Read more: Italian legislator introduces a more attractive flat tax regime on foreign-source incomes and...

Online companies incorporated abroad (with no presence in Uruguay) are required to pay taxes in Uruguay whenever their clients are located within Uruguayan territory.

Online services providers (such as Netflix and Spotify) are subject to VAT at the rate of 22%, plus Non-Residents Income Tax (so-called IRNR) at the rate of 12%, both assessed over the sales price. Online services intermediaries (such as Uber and Airbnb) are subject to the same taxes, except that IRNR is assessed only over 50% of their sales where one of the parties of the ultimate transaction is based abroad.

Read more: Uruguay - Taxation on E-commerce Companies: New Regulations

On June 21, 2018, the U.S. Supreme Court released its much-anticipated opinion in South Dakota v. Wayfair, Inc., in which it held that physical presence within a State is no longer a prerequisite to the imposition of liability on out-of-state sellers to collect and remit sales taxes. In doing so, the Court overruled two of its own earlier cases—National Bellas Hess, Inc. v. Department of Revenue of Illinois and Quill Corp. v. North Dakota.

In Wayfair, the Court upheld a 2016 South Dakota sales tax law that required out-of-state sellers with no physical presence in the State to collect and remit sales tax if they annually delivered more than $100,000 of goods or services into the State or engaged in 200 or more separate transactions for delivery of goods or services into the State. The law was not retroactive and had provisions for expeditious judicial review. South Dakota’s courts had stricken the law as being contrary to the U.S. Supreme Court’s previous holdings in Bellas Hess and Quill.

Read more: What The U.S. Supreme Court’s Wayfair Ruling Means for Businesses

On June 19, 2018, the U.S. Supreme Court held, in a 5-4 decision written by Justice Kennedy, that states may require an out-of-state retailer to collect and remit sales tax on purchases by residents within that state. [South Dakota v. Wayfair]. Until now, the states could not compel any retailer to collect the tax unless it had a physical presence in the state.

Wayfair is a historic ruling that will change the landscape for state sales tax collection. Many states have already enacted legislation in anticipation of a favorable ruling in Wayfair, and it is anticipated that the states that have not done so will move quickly to enact such legislation to increase their revenues.

Read more: The U.S. Supreme Court’s Historic Ruling in South Dakota v. Wayfair Changes the Landscape for...