International Executive Services

1. International Executive Services US Tax Update 2009 and Hot Topics Michael Koehler Steuerberater, CPA, Manager Tax Warsaw, February 17, 2010 TAX

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4. Agenda • Due Dates, TY 2009 in numbers • Tax Updates • Haiti Charity Bill • Tax provisions expired in 2009 and expiring in 2010 • Tax Extenders Act 2009 • International Tax Enforcement • Foreign Account Tax Compliance Act (FATCA) • Senate’s Jobs Creation Bills • Estate & gift tax update • Health Care Reform Bills • Administration’s Tax Proposal 2011

5. Due Dates • Initial due date - April 15, 2010 • Extension dates- • June 15, 2010 - Automatic Extension for taxpayers abroad • October 15, 2010 • December 15, 2010 • January 30, 2011 • Forms • 4868 • 6 month extension through October 15, 2010 • Additional 2 month extension through December 15 valid for taxpayers abroad with written request to the Philadelphia Center • 2350 • First year abroad electing foreign earned income and housing exclusion

6. TY 2009 in numbers

7. TY 2009 in numbers • Personal Exemption: $3,650 (min. $2,333) • 401(k) contribution limit: $16,500 • IRA contribution limit: $5,000 • Roth IRA AGI limitation: $166,000 (MFJ), $0 (MFS) or $105,000 (Single or HOH) • FICA threshold: $106,800

8. Haiti Charity Bill • Signed into law on January 22, 2010 • Cash contributions • After January 11, 2010 and before March 1, 2010 • For relief of Haiti earthquake victims • To U.S. qualified charity • Can be treated as if made on December 31, 2009 • Caution: Itemized deduction phase out repealed in 2010

9. 2009 Expired Provisions • Increased AMT exemption amount • Additional standard deduction for real estate tax • Deduction for State and local sales tax • Allowance for additional IRA contributions in certain bankruptcy cases • Above the line deduction for qualified tuition and related expenses • Other business and energy related provisions

10. 2010 Expiring Provisions • First time home buyer credit • Reduced capital gains tax rates • Dividends taxed at capital gains tax rates • 10% tax bracket • Increase of refundable child tax credit • Making work pay credit • Repeal of personal exemption phase-out

11. Tax Extenders Act of 2009 • Extend provisions expired in 2009 for 1 year until 12/31/2010 • Deduction for State and local sales tax • Additional standard deduction for real property tax • Above-the-line deduction for qualified tuition and related expenses • Revenue provisions • Foreign Account Tax Compliance Act • Tax carried interest as ordinary income

12. International Tax Enforcement • Growing concerns that taxpayers with international investments are underpaying their U.S. taxes while at the same time the IRS may lack sufficient information and tools to identify these issues and to pursue effectively • An estimated 800 new hires at the IRS devoted to international enforcement • After tax returns are filed, prepare for or even anticipate increased scrutiny from the IRS

13. International Tax Enforcement • IRS identified various issues including foreign tax credit, international financing, transfer pricing and information return filing issues • Automatic assessment of penalties for late filed Forms 5471 of corporate taxpayers • If successful, automatic assessment of penalties could be expanded to other taxpayers and/or other forms

14. International Tax Enforcement • Foreign Bank Account Reporting • Financial interest and/or signature authority over foreign bank accounts • Aggregate value exceeding $10,000 • Failure to file FBAR subject to both criminal and civil penalties • Civil penalties: up to the greater of $100,000 or 50% of the account balance • Criminal penalties: fine up to $250,000 and imprisonment for 5 years • Not considered tax return information • Distribution to other law enforcement agencies not limited by nondisclosure rules

15. International Tax Enforcement • Foreign Bank Account Reporting cont. • Revised Form TD F 90-22.1 in October 2008 • Voluntary disclosure initiative in 2009

16. Foreign Account Tax Compliance Act • November 18, 2009: introduced as a separate bill • December 7, 2009: attached to Tax Extenders Bill 2009 as revenue offset • December 9, 2009: House approves Tax Extenders Bill 2009 • December 22, 2009: Senate will consider Tax Extenders Bill 2009 when it reconvenes in January 2010 • February 11, 2010: Attached to Senate’s Jobs Creation Bills

17. Foreign Account Tax Compliance Act • Increase foreign financial asset reporting • Depository or custodial accounts at foreign financial institutions • Stocks or securities issues by a foreign person • Other financial instruments or contracts held for investment issued by a foreign person • Any interest in a foreign entity • Aggregated value over $50,000 • Disclosure statement as part of the income tax return • In addition to FBAR • Failure to disclose, same penalties as for FBAR

18. Foreign Account Tax Compliance Act • Increase of statue of limitation • 6 years instead of 3 years • Underreporting of gross income in excess of $5,000 from foreign financial assets required to be reported • New 40% accuracy related penalty • Passive Foreign Investment Company (PFIC) Reporting • Form 8621 required • Currently: only if distribution received or PFIC shares disposed • In the future: annually

19. Foreign Account Tax Compliance Act • Foreign banks required to • Issue Forms 1099, or • Provide information about US customers to the IRS • Name of account owner • Taxpayer identification number • Account number • Account balance • Income earned • Gross withdrawals from account • 30% withholding tax on US income • Similar reporting requirements for other foreign entities with respect to their >10% U.S. owners

20. Foreign Account Tax Compliance Act • Disclosure of assistance in acquiring or forming of foreign entities • Any person, including tax advisors, lawyers, etc. for • Material aid, assistance or advice to • U.S. person acquiring a direct or indirect interest in foreign entity • Required to file an information return • Identity of U.S. person • Identity of foreign entity • Other information as required by the Secretary • Gross income from such assistance or advice in excess of $100,000 • Penalty: greater of $10,000 or 50% of gross income

21. Senate‘s Jobs Creation Bills • February 11, 2010 2 separate bills introduced • Senate Finance Committee Leaders • Hiring Incentives to Restore Employment Act • Includes Tax Extenders, FATCA, Economic Substance Doctrine • Senate Majority Leader • Hiring Incentives to Restore Employment Act • Includes FATCA • Does not include Tax Extenders • Create tax incentives for small business to encourage job creation

22. Estate & Gift Tax Update • Current law as enacted in 2001 • Exemption of $3.5 million for estate tax in 2009 • Exemption of $1 million for gift tax in 2009 • Maximum tax rate 45% in 2009 (35% in 2010) • No estate tax for 2010 • Sunset provision • Beginning 2011, reverts back status before 2001 • Unified exemption of $1 million for estate and gift tax • Maximum tax rate 55%

23. Estate & Gift Tax Update • December 3, 2009 • House approves „Permanent Estate Tax Relief for Families, Farmers and Small Businesses Act of 2009“ • Permanently extends estate and gift tax provisions of 2009 • Exemption of $3.5 million for estate tax in 2009 • Exemption of $1 million for gift tax in 2009 • Maximum tax rate 45% • No repeal of estate tax for 2010 • Senate has not scheduled consideration of estate tax bill

24. Health Care Reform Bills • House and Senate version of the Health Care Reform Bill include various tax provisions • Increase of additional tax on distributions from HAS • From 10% to 20% • Distributions before age of 65 used for other than qualified medical purposes • Limitation of contributions to flexible spending arrangements to $2,500 per year • AGI limitation for medical expenses as itemized deductions • Increased from 7.5% to 10% • Additional medicare tax on high-income taxpayers • Additional 0.9 on wages of individuals over $200,000 ($250,000 MFJ)

25. Health Care Reform Bills • Adoption credit • Increased from $10,000 to $13,170 • Made refundable • Additional tax of 2.5% of modified AGI • Individuals not obtaining acceptable health care coverage for themselves or dependents • Dependents, nonresident aliens and certain individuals residing outside the U.S. should be exempt • Income surtax • 5.4% • Modified AGI in excess of $500,000 ($1 million MFJ) • Economic substance doctrine • Change taxpayer’s economic position in a meaningful way • Substantial purpose other than tax treatment

26. Administration‘s Tax Proposal 2011 • Reinstate 36% and 39.6% tax rates • 10%, 15%, 25% and 28% tax brackets continue with thresholds indexed for inflation • 33% and 35% tax rates eliminated • 36% tax bracket starts at $190,650 for singles ($231,300 MFJ) • 39% tax bracket should start where old 35% rate applied • Increase of maximum capital gains and dividends tax rate for higher-income tax payers • 20% instead of 15% • Taxpayers subject to 36% and 39.6% tax brackets

27. Administration‘s Tax Proposal 2011 • Restore phase-outs of itemized deductions and personal exemptions • Single taxpayer with AGI exceeding $200,000 ($250,000 MFJ) • Limit the tax benefit of itemized deductions to 28% • Changes to AMT • Index the phase-out of AMT exemption and the threshold for 28% AMT rate for inflation • Continue temporary “patches” to set AMT exemption amount • New maximum capital gains and dividends rate for higher-income taxpayer also apply to AMT

28. Administration‘s Tax Proposal 2011 • Extend the „Making Work Pay Credit“ for 1 year (until end of 2011) • Modifications of income limits for refundable child tax credit • Adjustments to phase-out of nonrefundable child care credit • Change “Saver’s Credit” from nonrefundable tax credit to matching contribution to taxpayer’s qualified retirement plan • Replace HOPE scholarship credit permanently with American Opportunity Tax Credit • Make permanent temporary features of the earned income tax credit

29. Administration‘s Tax Proposal 2011 • Extend certain 2010 expiring provisions through December 31, 2011 • Did not provide list of provisions planned to be extended • Did not propose to extend: • First time home buyer credit • Additional standard deduction for real estate taxes • Sales tax deduction for purchase of motor vehicle • Limited exclusion of unemployment compensation • Codify economic substance doctrine • Change taxpayer’s economic position in a meaningful way • Substantial purpose other than tax treatment • Lacking economic substance: 30% penalty for understatements (20% with adequate disclosure)

30. Administration‘s Tax Proposal 2011 • Worker classification • Revenue Act of 1978 prohibited the IRS from • Reclassifying an independent contractor to employee status • Issuing guidance addressing the proper classification of workers • Allow the IRS to require the service recipient to prospectively reclassify workers who are currently misclassified • Direct the IRS to issue guidance that • Interprets common law in a neutral manner • Provides safe harbors and/or rebuttable presumptions • Anticipated that new enforcement activity would focus mainly on proper worker classification

31. Administration‘s Tax Proposal 2011 • Repeated willful failure to file a tax return becomes a felony • 3 years within any 5 consecutive year period • Aggregate tax liability for the period is at least $50,000 • Estate and gift tax changes • Make 2009 law permanent • Require consistency in property value for transfer and income tax • Modify rules on valuation discounts • International tax enforcement • FATCA • Require reporting on transfers to and from foreign account by the taxpayer and by the bank if aggregate value of such transfers exceed $50,000

32. U.S. tax session Questions?

33. Contact:KPMG AG Wirtschaftsprüfungsgesellschaft Michael Koehler Dagmar Geßner GasparT +49 69 9587-2888 T +49 69 9587-2250 michaelkoehler@kpmg.comdgessner-gaspar@kpmg.com www.kpmg.de The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. © 2009 KPMG AG Wirtschaftsprüfungsgesellschaft, a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International.