Department of State Releases August 2013 Visa Bulletin

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EB-2 category for individuals chargeable to India advances by more than three years.

The U.S. Department of State (DOS) has released its August 2013 Visa Bulletin. The Visa Bulletin sets out per country priority date cutoffs that regulate the flow of adjustment of status (AOS) and consular immigrant visa applications. Foreign nationals may file applications to adjust their status to that of permanent resident or to obtain approval of an immigrant visa at a U.S. embassy or consulate abroad, provided that their priority dates are prior to the respective cutoff dates specified by the DOS.

What Does the August 2013 Visa Bulletin Say?

The cutoff date in the EB-2 category for individuals chargeable to India has advanced by three years and four months in an effort to fully utilize the numbers available under the annual limit. It is expected that such movement will generate a significant amount of demand from individuals chargeable to India during the coming months.

EB-1: All EB-1 categories remain current.

EB-2: A cutoff date of January 1, 2008 is now in effect for individuals in the EB-2 category from India, reflecting forward movement of three years and four months. A cutoff date of August 8, 2008 remains in effect from the July Visa Bulletin for individuals in the EB-2 category from China. The cutoff date remains current for individuals in the EB-2 category from all other countries.

EB-3: There is continued backlog in the EB-3 category for all countries, with minor forward movement for EB-3 individuals from the Philippines and no forward movement for EB-3 individuals from the rest of the world.

The relevant priority date cutoffs for foreign nationals in the EB-3 category are as follows:

China: January 1, 2009 (no forward movement)
India: January 22, 2003 (no forward movement)
Mexico: January 1, 2009 (no forward movement)
Philippines: October 22, 2006 (forward movement of 21 days)
Rest of the World: January 1, 2009 (no forward movement)

Developments Affecting the EB-2 Employment-Based Category

Mexico, the Philippines, and the Rest of the World

In November 2012, the EB-2 category for individuals chargeable to all countries other than China and India became current. This meant that EB-2 individuals chargeable to countries other than China and India could file AOS applications or have applications approved on or afterNovember 1, 2012. The August Visa Bulletin indicates that the EB-2 category will continue to remain current for these individuals through August 2013.

China

As with the July Visa Bulletin, the August Visa Bulletin indicates a cutoff date of August 8, 2008 for EB-2 individuals chargeable to China. This means that EB-2 individuals chargeable to China with a priority date prior to August 8, 2008 may continue to file AOS applications or have applications approved through August 2013.

India

From October 2012 through the present, the cutoff date for EB-2 individuals chargeable to India has been September 1, 2004. The August Visa Bulletin indicates forward movement of this cutoff date by more than three years to January 1, 2008. This means that EB-2 individuals chargeable to India with a priority date prior to January 1, 2008 may file AOS applications or have applications approved in August 2013. The August Visa Bulletin indicates that this cutoff date has been advanced in an effort to fully utilize the numbers available under the EB-2 annual limit. It is expected that such movement will generate a significant amount of demand from individuals chargeable to India during the coming months.

This significant advancement in the cutoff date for EB-2 individuals chargeable to India will quite possibly be followed by significant retrogression in the new fiscal year. Consequently, AOS applications filed in September 2013 may be received and receipted by U.S. Citizenship and Immigration Services; however, adjudication could be delayed. Applications for interim benefits, including employment authorization and advance parole, should be adjudicated in a timely manner notwithstanding any possible retrogression of cutoff dates.

Developments Affecting the EB-3 Employment-Based Category

In May, June, and July, the cutoff dates for EB-3 individuals chargeable to most countries advanced significantly in an attempt to generate demand and fully utilize the annual numerical limits for the category. The August Visa Bulletin indicates no additional forward movement in this category, with the exception of the Philippines, which advanced by 21 days.

China

The July Visa Bulletin indicated a cutoff date of January 1, 2009 for EB-3 individuals chargeable to China. The August Visa Bulletin indicates no movement of this cutoff date. This means that EB-3 individuals chargeable to China with a priority date prior to January 1, 2009 may file AOS applications or have applications approved through August 2013.

India

Additionally, the July Visa Bulletin indicated a cutoff date of January 22, 2003 for EB-3 individuals chargeable to India. The August Visa Bulletin indicates no movement of this cutoff date. This means that EB-3 individuals chargeable to India with a priority date prior to January 22, 2003 may file AOS applications or have applications approved through August 2013.

Rest of the World

The July Visa Bulletin indicated a cutoff date of January 1, 2009 for EB-3 individuals chargeable to the Rest of the World. The August Visa Bulletin indicates no movement of this cutoff date. This means that individuals chargeable to all countries other than China, India, Mexico, and the Philippines with a priority date prior to January 1, 2009 may file AOS applications or have applications approved through August 2013.

How This Affects You

Priority date cutoffs are assessed on a monthly basis by the DOS, based on anticipated demand. Cutoff dates can move forward or backward or remain static. Employers and employees should take the immigrant visa backlogs into account in their long-term planning and take measures to mitigate their effects. To see the August 2013 Visa Bulletin in its entirety, please visit the DOS website here.

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China’s First-Ever National Standard on Data Privacy – Best Practices for Companies in China on Managing Data Privacy

Sheppard Mullin 2012

Companies doing business in China should take careful notice that China is now paying more attention to personal data privacy collection. This would be an opportune time for private companies to internally review existing data collection and management practices, as well as determine whether these fall within the new guidelines, and where necessary, develop and incorporate new internal data privacy practices.

The Information Security Technology-Guide for Personal Information Protection within Public and Commercial Systems (“Guidelines”), China’s first-ever national standard for personal data privacy protection, came into effect on February 1, 2013. The Guidelines, while not legally binding, are just what they purport to be – guidelines – some commentators view these as technical guidelines. However, the Guidelines should not be taken lightly as this may be a pre-cursor of new legislation ahead. China is not quite ready to issue new binding legislation, but there are indications it seeks to develop consistency with other internationally accepted practices, especially following recent data legislation enacted in the region by neighboring Hong Kong and other Asian countries.

What should companies look for when examining existing data privacy and collection policy and practices? As the Guidelines provide for rules on collecting, handling, transferring and deleting personal information, these areas of a company’s current policies should be reviewed.

“Personal Information”

What personal information is subject to the Guidelines? The Guidelines define “personal information” as “computer data that may be processed by an information system, relevant to a certain natural person, and that may be used solely or along with other information to identify such natural person.”

“General” and “Sensitive” Personal Information

The Guidelines makes a distinction on handling “general” as opposed to “sensitive” personal information. Sensitive personal information is defined as “information the leakage of which will cause adverse consequences to the subject individual” e.g. information such as an individual’s identity card, religious views or fingerprints.

Consent Required

If an individual’s personal information is being collected, that individual should be informed as to the purpose and the scope of the data being collected; tacit consent must be obtained- the individual does not object after being well informed. With “sensitive” personal information being collected, a higher level of consent must be obtained prior to collection and use; the individual must provide express consent and such evidence be retained.

Notice

Best practices dictate a well-informed notice be given the individual prior to collection of any personal information. The notice should clearly spell out, among other items, what information is being collected, the purpose for which the information will be used, the method of collection, party to whom the personal information will be disclosed and retention period.

Cross Border Transfer

The Guidelines further limit the transfer of personal information to any organization outside of P.R. China except where the individual provides consent, the government authorizes the transfer or the transfer is required by law. It is unclear as to which law applies where transfer is “required by law”- PRC law or law of any other country.

Notification of Breach

There is a notification requirement. The individual must be notified if personal information is lost, altered or divulged. If the breach incident is material, then the “personal information protection administration authority.” The Guidelines, however, do not define or make clear this administration authority is here.

Retention and Deletion

Best practices for a company is to minimize the amount of personal information collected. Personal information once used to achieve their intended purpose should not be stored and maintained, but immediately deleted.

The Guidelines may not be binding authority, but at a minimum sets certain standards for the collection, transfer and management of personal information. Especially for companies operating in China, the Guidelines is a call to action, and for implementation of best practices relating to data privacy. Companies should take this opportunity to assess their data privacy and security policies, review and revise customer information intake procedures and documentation, and develop and implement clear, company-wide internal data privacy policies and methods.

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Canadians, the American Dream, and the EB-5 Investor Visa

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It’s that time of year when Canadians wintering south of the border begin to realize that fairly soon they will be packing their things and making the long trip north again. Some of them will do so willingly, eager to get back to friends and family, others will consider extending their stay by another couple of weeks or months, and still others will wonder if there is not some way to make a permanent move south.

The cliché of the Canadian “Snow Bird” exists, because it is a reality. Every winter thousands of Canadians travel south to places like Florida, Arizona, California and Hawaii. The majority retired, they may effectively spend half of their retirement Stateside.

Agreements between the US and Canada make this yearly passage possible. Under US immigration laws, Canadians are generally allowed entry as a visitor in the US for up to 6 months (180 days) at a time when they cross the US border by land, air or sea.

When it comes to taxes, the US Internal Revenue Service (“IRS”) has its own set of rules completely distinct from US immigration law. The US IRS allows Canadians to spend up to 182 days in the US under its “substantial presence” test over the course of 3 years before requiring Canadians to file a non-resident US tax return. Even then, the Canada-US tax treaty provides protections to facilitate this reporting and to keep Canadians on side with both the Canada Revenue Agency (“CRA”) and the IRS (see IRS Form 8833 Treaty Based Return Position Disclosure).

It is important for every Canadian spending time south of the border to make note of these separate, and sometimes conflicting, rules.

For those Canadians wishing to extend their stay in the US, they should look at both of these aforementioned rules to determine if this possibility exists for them. With the US and Canada announcing new initiatives to share information on the entry and exit of people across their shared border, it is possible that overstaying your 6 month entry to the US by even a few days could cause issues with US immigration next time you try to reenter the US. Additionally, for those who wish to avoid the hassle of US income tax filings, special care and attention should be given to the IRS’ “substantial presence” test.

What about those Canadians whose American Dream is not just passing October to April in the US, but rather relocating permanently?

While the US has various visa options available for those looking to work or start a business in the US, it does not have any retiree visa options, unless, perhaps, the applicant is closely related to a US citizen.

Those without a US citizen as a close relative who wish to immigrate to the US without the responsibility of working or starting a company may wish to consider the EB-5 Investor Visa.

The EB-5 Investor Visa was created by the Immigration Act of 1990, and it is a direct pathway to US permanent residency (also known as a US green card). Permanent residency allows you to live and work, or not work, in the US for as long as you would like. It also gives access to potential eligibility for programs such as US Social Security Insurance and Medicare.

To qualify for an EB-5 Investor Visa, the applicant is generally required to invest $1 Million USD in a business entity that creates or preserves at least 10 full-time jobs for US workers within 2 years. In exchange, the investor receives conditional permanent residency for the first two years, and full permanent residency at 2 years once he or she proves fulfillment of the visa requirements. It also allows the spouse and unmarried children under age 21 of the applicant to receive permanent residency.

For those who do not want or are not able to make a $1 Million USD investment, the US government will issue an EB-5 Investor Visa for investments of $500,000 USD in an approved “regional center” project, or if the passive investment is made in either a targeted low employment or rural area. Additionally, those who invest in regional centers receive the added benefit of being able to look to “indirect job creation” to fulfill the 10 full-time US jobs requirement.

Entrepreneurs starting an enterprise in the US may use the EB-5 visa, but it is equally accessible to passive investors looking for a way to make a permanent move to the US, especially when dealing with an approved regional center.

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China Enacts New Employment Law Affecting Employers Who Do Not Directly Employ Their Workers

Sheppard Mullin 2012

China has a new employment law. This new law significantly impacts an employer who does not directly employ its own workers, but instead uses agencies such as FESCO or third party staffing companies, also known as labor dispatching agencies. At the end of 2012, the Standing Committee of the National People’s Congress adopted the Decision on the Revision of the Labor Contract Law of the People’s Republic of China (“Amendment”). The Amendment will take effect July 1st of this year. The intent of the Amendment is to offer better protection to workers employed by labor dispatching agencies.

Labor dispatching is a common method of employment where a worker enters into an employment contract with a labor dispatch agency and is then dispatched to work in another company – commonly referred to as the “host company”. This type of employment arrangement has proved problematic because many of the dispatched workers are not paid wages commensurate with their work as compared to their direct hire, permanent employee counterparts. Additionally, the dispatched workers’ health and safety rights are not well protected. The Amendment tackles this problem by requiring employers to hire the majority of their workforce directly and by strictly controlling the number of dispatched laborers. Moreover, the Amendment clearly states that all employers shall stick to the principle of “equal pay for equal work”.

The four main revisions introduced by the Amendment can be found by clicking here:

MAIN SECTION:

Heightened Standards

First, the standards for establishing a Labor Dispatch Agency are heightened. Specifically, a labor dispatch agency is now required to:

a. have a minimum registered capital of no less than RMB 2,000,000 (previously only RMB 500,000);

b. operate from a permanent business premise with facilities that are suitable to conduct its business;

c. have internal dispatch rules that are compliant with the relevant laws and administrative regulations;

d. satisfy other conditions as prescribed by laws and administrative regulations; and

e. apply for an administrative license and obtain approval from the relevant labor authorities.

All labor dispatch agencies established after July 1, 2013, will need to meet these new local labor law requirements before they can start the company registration process. Existing agencies that are already licensed have until July 1, 2014, to meet all local labor law requirements before renewing their business registration.

Equal Pay for Equal Work

Second, one of the most problematic areas of the former dispatch model was the inequitable pay between dispatch workers and their similarly situated, direct hire counterparts. The Amendment adds the principle of “equal pay for equal work” such that dispatch agencies must provide the same remuneration standards for dispatched employees as is provided to the direct hire employees who hold similar positions.

Clarification of Acceptable Outsourcing

Third, the Amendment clarifies that labor dispatch arrangements should only be implemented for temporary, ancillary or substitute positions. The Amendment clearly defines these categories as follows:

  • Temporary position: A position that will last no more than six months
  • Auxiliary position: A position that is not a part of the main or core business of the company
  • Substitute position: A position that must be temporarily filled because a permanent employee is away from work on leave or for other reasons

The Amendment further narrows the use of outsourcing by limiting the percentage of outsourced workers a company may have. The actual percentage shall be prescribed by the Labor Administration Department of the State Council. This percentage of dispatched workers does not apply to representative offices established by foreign companies in China. This is because representative offices are not allowed to hire Chinese employees directly, and instead must hire them through a labor dispatching agency.

Tougher Penalties

Fourth, the Amendment imposes tougher penalties. Specifically, for entities providing labor dispatch services without a license, the labor authorities may confiscate all illegal gains and impose a fine of no less than one time, but not more than five times, the illegal gains on such entities. Where there are no illegal gains, a fine of no more than RMB 50,000 may be imposed.

Employers and dispatching agencies violating the law, and failing to correct the violations within a certain time period, may be fined between RMB 5,000 and RMB 10,000 per dispatched worker. Additionally, labor dispatching agencies may get their business licenses revoked.

Conclusion

How aggressively the new law will be enforced remains to be seen, but companies should be prepared none the less. Companies that use labor dispatch agencies should ensure that their service provider has the proper license. Furthermore, any company with a high percentage of dispatched workers should evaluate their employment model and prepare for potentially transitioning their employment strategies in order to comply with the new Labor Contract Law. This may include direct hiring for some of the currently outsourced positions. Lastly, companies should evaluate their internal policies to ensure that they are sufficient for any changes – especially those involving headcount – that may be made.

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Six Ways to do Business Overseas While Reducing the Perils of Future Litigation

Sheppard Mullin 2012

As an executive or in-house counsel, your work likely reaches across the globe.

90% of companies in the United States are involved in litigation—much of it international. American companies have increased overseas business from 49% in 2008 to 72% as late as 2010.

If you work for a medium to large corporation, you are liking working overseas or interacting with colleagues that are. This means that you are likely working around the clock putting out fires, making deals, and juggling regulatory hurdles. Are you worried of running so fast in such unknown territory that you may miss something? Do you wish you had more time to learn everything to minimize your company’s business and litigation risks?

I have good and bad news. The bad—it is nearly impossible to know all of the intricacies of international law, customs, or the unique business challenges facing your company. The good news—you don’t have to. The reality is that ignorance of international law is not what gets you in trouble . . . facts do. Case in point, see Wal-Mart’s bribery scandal in Mexico.

Here are six habits you already know and should put into practice to reduce the risks of bad facts leading to future international litigation:

1. Watch What You Put in Email

You are in charge of an international project and the pressure is mounting. Your foreign counterparts seek written assurances. So, you go on the record via email stating definitively and unequivocally the company’s position. Years later and, with hindsight, you learn you were wrong and it comes back to bite you in litigation. Or maybe you feel especially close to your Brazilian counter-part after a night of food and drinks, so you share information via email about your company’s “issues.” That email is later produced in litigation and becomes evidence against your company.

Remember, emails live on forever and travel . . . fast! Like water leaks, emails go unnoticed until the full impact of their damage emerges years later.

This is basic, but often key in litigation. If you are doing business overseas: watch your tone, grammar, use of local colloquialisms, or use of vague undefined terms (e.g. “material” breach). Avoid definitive words like: “always,” “never,” or “definitely.” Give yourself margin for error. If you are assuming, say so in your email. If you still need approval for your written position, note as much in the email. Ask yourself, “is what I am writing something I would be okay having blown up on an overhead projector in court?” If so, send away.

2. Write Facts Down and Do So Clearly

The fear of bad facts or cross-examination should not deter you from writing. Given the language barriers of international work, communication is vital to your success. So, you should write emails and correspondence. But how? The key is clarity of facts.

This means, writing facts, not conclusions or opinions. When you portray facts, be objective and detail-oriented. For example, retell the other side’s position and your company’s response. Don’t assume that the other side will stick to the same story they told you orally, so document it.

However, you are often called to make conclusions or state an opinion. When you do, make sure you identify why, the process leading to the conclusion/opinion, and what factors could change your initial viewpoint.

Litigation is drama and international litigation is drama on a global scale where each side gives their “story.” Take the lead and document the “real story” by writing it down. When you do, and litigation erupts, a litigator like me can clearly and persuasively tell your story.

3. Respect Cultural Sensitivities, But Don’t Be Afraid to Follow Up

You are in meetings with your counter-parts in Asia and essential business issues come up. Yet, you are concerned about being culturally sensitive and not losing “face.” So, you let the issue pass and put it on your to-do list. As the days pass, hundreds of other “to-do” issues join it on your list and you forget.

Respect cultural sensitivities, but always follow-up. Better yet, document it, follow-up over the phone or in person, and document what you did. I have seen clients’ major multi-million dollar litigation matters get sidetracked because an executive failed to follow-up on a legitimate concern and subsequently “waived” the issue.

4. Be a Gatekeeper and Assert Your Contractual Rights

Companies and their executives fly to the moon to strike an international deal that benefits the company. They hire great lawyers to put in all the bells and whistles to protect their business interests. Yet, when the deal meets the reality of daily business life, gravity takes over and the precious rights protected in the contract fall flat to earth.

If you are the executive sent overseas to manage the project or handle the international distribution business, become the gatekeeper. That means: read the previously negotiated contract, understand it, ask questions about it, know it intimately, and then follow the terms of the contract.

If the contract gives you the right to documents from the foreign company, politely, but firmly get your documents. If the contract calls for a delivery schedule, follow it and insist the other side do the same. If the contract requires your foreign counterpart to act a certain way, do a number of things, or behave within the confines of a certain standard, make sure they do.

Your failure to know your contract and follow it, could waive important rights, change the terms of the contract, and create multiple avenues of arguments for the other side. This could come to haunt you later when you are back in the United States and the project you were in charge of heads to litigation.

5. Ask Questions, Look Around, and Gather Information

Maybe the most important and underused tool in your arsenal to reduce the risk of overseas business leading to litigation is to ask questions.

As you undertake your overseas assignment, you will notice that some things don’t make sense. When this happens, ask questions. Who is the foreign executive you are dealing with? What is his role in the company? Why is he asking you to meet with him and a foreign government official at a swanky resort? Could this be a problem? Maybe, but you will never know where you and your company stand unless you ask questions.

While you are asking questions, look around. If you are managing a construction project in Qatar, get on the ground and look at the project site. Don’t rely on others to tell you what is happening, see it for yourself. Open your eyes . . . is anything off? What’s there that shouldn’t be there? What isn’t there that should be there? If you know your contract (as in Tip 4 above), you will know what doesn’t look right.

Gather readily available information. The reality is that international litigation becomes very difficult and expensive from the United States when all of the evidence remains overseas. So, if you hear your foreign counter-part discuss a “regulation,” “policy,” or “contract” that they are relying on, ask to have a copy . . . and actually get it. Doing so will give your company an advantage in discovery if litigation ensues.

In the end, use your senses. What do you see and hear? Does it smell or feel right? If not, take note, ask questions, and gather information as it occurs.

6. Seek Advice

Note, it is wise to seek advice on international law when doing business overseas. Whether you are working on an international investment deal,cross border real estate transaction, want to protect your intellectual property, or are worried about immigration exposure, it is good business to get counsel.

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U.S. Supreme Court Unanimously Upholds Creditability of UK Windfall Tax

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In a rare unanimous decision with potentially far-reaching impact on taxpayers claiming foreign tax credits, the Supreme Court of the United States ruled that a “windfall tax” imposed by the United Kingdom was creditable under IRC Section 901.


On May 20, 2013, in a rare unanimous decision with potentially far-reaching impact on taxpayers claiming foreign tax credits, the Supreme Court of the United States ruled that a “windfall tax” imposed by the United Kingdom was creditable under Internal Revenue Code (IRC) Section 901.  This decision definitively establishes the principles to be applied when determining whether a foreign tax is creditable under Section 901, expressly favoring a “substance-over-form” evaluation of a foreign tax’s economic impact.

The UK windfall tax was enacted in 1997 as a means to recoup excess profits earned by 32 UK utility and transportation companies once owned by the government.  During the 1980s and 1990s, the UK sold several government-owned utility companies to private parties.  After privatization, the UK Government prohibited these companies from raising rates for an initial period of time.  Because only rates and not profits were regulated, many of these companies were able to greatly increase their profits by becoming more efficient.  The increased profitability of these companies drew public attention and became a hot political issue in the United Kingdom, which ultimately resulted in Parliament enacting a windfall tax designed to capture the excess or “windfall” profits earned by these companies during the years they were prohibited from raising rates.  The tax was 23 percent of any “windfall” earned by such companies, which was calculated by subtracting the price for which the company was sold by the United Kingdom from an imputed value based on the company’s average annual profits.  Both PPL Corporation and Entergy Corporation owned interests in two of these 32 privatized companies and took a U.S. tax credit for the windfall taxes paid to the United Kingdom.

IRC Section 901 grants U.S. citizens and corporations an income tax credit for “the amount of any income, war profits and excess-profits taxes paid or accrued during the taxable year to any foreign country or to any possession of the United States.”  Whether a foreign tax is creditable for U.S. income tax purposes is based upon the “predominant standard for creditability” laid out in Treasury Regulation §1.901-2.  Under that approach, a foreign tax is an income tax “if and only if the tax, judged on the basis of its predominant character,” satisfies three tests.  The foreign tax must be imposed on realized income (i.e., income that has already been earned), the basis of gross receipts (i.e., revenue) and net income (i.e., gross receipts less significant costs and expenditures).  See Treas. Reg. §1.901-2(a)(3).

The Supreme Court’s decision resolved a split between the U.S. Courts of Appeals for the Third and Fifth Circuits on how to apply the predominant standard for the creditability test set forth in the regulations.  The Third and Fifth Circuits took opposite views of two U.S. Tax Court decisions, PPL Corp.  v. Commissioner, 135 T.C. 304 (2010), and Entergy Corp.  v. Commissioner, T.C. Memo. 2010-197, which both held in favor of the taxpayers that the practical effect of the UK windfall tax, the circumstances of its adoption and the intent of the members of Parliament who enacted it evidenced that the substance of the tax was to tax excess profits, and therefore was creditable.

In PPL Corp. v. Commissioner, 665 F.3d 60 (3d Cir. 2011), the Third Circuit reversed the Tax Court, refusing to consider the practical effect of the UK windfall tax and the intent of its drafters.  Instead, the court focused solely on the text of the UK statute, which in its estimation was a tax on excess value and not on profits.  In contrast, in Entergy Corp. v. Commissioner, 683 F.2d 233 (5th Cir. 2012), the Fifth Circuit affirmed the Tax Court, finding that the tax’s practical effect on the taxpayer demonstrated that the purpose of the tax was to tax excess profits.  The court explained that Parliament’s decision to label an “entirely profit-driven figure a ‘profit-making value’ must not obscure the history and actual effect of the tax.”

In its decision, the Supreme Court agreed with both the Fifth Circuit and the Tax Court.  In applying the rules of the Treasury Regulations, the Supreme Court reinforced the three basic principles to determine whether a tax is creditable.  First, a tax that functions as an income tax in most instances will be creditable even if a “handful of taxpayers” may be affected differently.  This means that the controlling factor is the tax’s predominant character.  Second, the economic effect of the tax, and not the characterization or structure of the tax by the foreign government, is controlling on whether the tax is an income tax.  This extends the principle of “substance over form” to the characterization of a foreign tax.  Third, a tax will be an income tax if it reaches net gain or profits.  Applying these principles to the PPL case, the Supreme Court found that the predominant character of the windfall tax was that of an excess profit tax and was therefore creditable.

The PPL decision will likely have far-reaching effects on courts that wrestle with whether certain taxes paid overseas are creditable for U.S. income tax purposes.

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Employee Shareholders: It’s Happening, but What Does it Mean?

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New Growth and Infrastructure Act introduces employee shareholder provisions that are expected to come into force later this year.

On 25 April, the Growth and Infrastructure Act 2013[1] came into effect and, among other things, introduced employee shareholder or “rights for shares” provisions that are expected to take effect this autumn in the UK. Broadly speaking, these provisions amend the Employment Rights Act 1996 (the ERA) to allow employees to give up some of their employment rights in exchange for shares in their employer company. However, in the absence of any additional guidance, the practical scope and impact of these changes remains unclear.

What We Do Know

Any company with share capital can enter into an agreement with an employee to allow them to become an “employee shareholder”. An employee shareholder will receive fully paid-up company shares that have a value of no less than £2,000 on the day of issue.

In exchange, the employee shareholder will give up the right to

•    request to undertake study or training;

•    request flexible working;

•    not be unfairly dismissed; and

•    a redundancy payment.

Further, the notice that employee shareholders will need to give before returning to work after maternity, parental, paternity, or adoption leave will be increased to 16 weeks.

Employee shareholders cannot waive their right to claim unfair dismissal where their dismissal breaches the Equality Act 2010 or health and safety legislation or is automatically unfair under the ERA. However, employers can make a job offer contingent on an applicant agreeing to become an employee shareholder. If an applicant refuses to do so, the employer can simply withdraw the job offer.

Before becoming an employee shareholder, each employee (or applicant to whom a job has been offered) must receive independent legal advice paid for by the employer (up to a “reasonable” level). The employer must pay these legal costs whether or not an employee elects to become an employee shareholder. Employees and applicants will then be given a seven-day cooling-off period in which they can withdraw their agreement.

For any acceptance to be valid, the employer must have provided the employee with a statement of particulars that sets out, among other things, the following:

•    The rights the employee shareholder gives up

•    The rights attached to the shares, e.g., voting, dividend, and ability to participate in the distribution of any surplus assets on winding up

•    Whether there are any restrictions on the transferability of the shares

•    Whether the employee shares are subject to drag-along rights or tag-along rights

Finally, an employee must not suffer a detriment for refusing to accept an offer to become an employee shareholder. Moreover, the dismissal of an employee for refusing to become an employee shareholder will be regarded as unfair.

What We Do Not Know

Transfer of Undertakings (Protection of Employment) Regulations (TUPE) Transfers.

If employee shareholders transfer across to an employer who does not operate an employee shareholder scheme or does not have any share capital, there is no guidance as to whether that employee shareholder automatically regains their rights or if they must surrender their shares first.

Share Schemes.

It is not clear whether companies that operate share schemes can make it a precondition of future participation in any company share scheme that an employee becomes an employee shareholder.

Termination.

On termination of the employment contract, a company can buy back shares from an employee shareholder. However, the conditions that must be satisfied before an employer buys back an employee’s shares are still unknown.

Potential Impact on UK Employers

•    £2,000 seems a relatively small amount when weighed against the potential value of rights that would be forfeited by employee shareholders. Employers can give shares worth more than £2,000, and it is therefore possible that, once the provisions are in force, along with salary, the sticking point in contractual negotiations will be the value of the shares given. That said, any deviation from the £2,000 figure may give rise to significant tax complications.

•    The provisions could create a two-tier workforce of employee shareholders and non-employee shareholders, with the former potentially subject to enforced contractual changes and other less favourable treatment that would normally result in potential constructive unfair dismissal claims.

•    In theory, an employer undertaking a redundancy exercise could simply select employee shareholders as redundant to avoid any unfair dismissal risk and/or any need to make redundancy payments.

By making both job offers and participation in employee share schemes conditional upon an employee’s accepting employee shareholder status, it is possible that some employers could significantly reduce and ultimately eradicate the risk of “pure” (i.e., non-discriminatory or non-whistleblowing related) unfair dismissal claims and the flexible working rights of their workforce.


[1]. View the Growth and Infrastructure Bill here.

No “Safe Harbor” for BitTorrent Website Operator

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The U.S. Court of Appeals for the Ninth Circuit affirmed a summary judgment ruling in favor of seven film studios finding that the defendant induced third parties to download infringing copies of the plaintiffs’ copyrighted works. Columbia Pictures Industries, Inc., et al.  v. Gary Fung, et al., Case No. 10-55946 (9th Cir., Mar.21, 2013) (Berzon, J.).

Seven film studios—including Columbia Pictures, Disney and Twentieth Century Fox—sued Gary Fung and his company isoHunt Technologies, claiming that Fung induced third parties to download infringing copies of the studios’ copyrighted works through Fung’s websites, such as torrentbox.com and isohunt.com—websites that help users find copies of videos to download and stream through a type of peer-to-peer file sharing network.

The district court found Fung liable for contributory copyright infringement for inducing others to infringe the studios’ copyrights and also found that Fung was not entitled to protection from damages liability under the safe harbor provisions of the Digital Millennium Copyright Act (DMCA).  After a permanent injunction was issued, Fung appealed.

On appeal, Fung challenged the full holding, including the scope of the injunction claiming that it was vague, punitive and an impediment to free speech.  The 9th Circuit, citing the Supreme Court decision in Grokster III (which also dealt with peer-to-peer file sharing technology), analyzed the facts of the present case under the four elements of the Grokster III inducement principle:  the distribution of a device or product, acts of infringement, an object of promoting its use to infringe copyright and causation.

Inducement Liability Under Grokster III

With respect to the first element of the Grokster III inducement liability standard, Fung argued that he did not develop or distribute products, nor did he develop the BitTorrent protocol used by his websites.  The 9th Circuit, however, distinguished copyrights as expression that are not necessarily in the form of products or devices. Thus, the court concluded that a copyright can be infringed through “culpable actions resulting in impermissible reproductions of copyrighted expression,” even if such actions are the provision of services used in accomplishing the infringement.

Fung was not able to rebut the second “acts of infringement” Grokster III factor after the studios presented evidence that Fung’s services were widely used to infringe copyrights by allowing uploading and downloading of copyrighted material. Accordingly, the court found for the studios on the second factor, noting that the “predominant use” of Fung’s services was for copyright infringement.

As to the third Grokster III factor, the court agreed with Fung that mere knowledge of a potential to infringe, or knowledge of actual infringing uses of a product or service, is not enough for liability.  Nevertheless, the court found there was more than enough evidence that Fung offered his services with the object to promote their use to infringe copyrighted material.  Specifically, the court found that the evidence showed Fung actively encouraged uploading files of specific copyrighted material; he provided links for certain movies and urged users to download those movies; he affirmatively responded to requests for help in locating and playing copyrighted materials; and, he even personally instructed users on how to burn infringing files to DVDs.  The court also referenced two points of circumstantial evidence raised by the Grokster III opinion, namely, that Fung took no steps to develop filtering tools to diminish infringing activity and that he generated revenue by selling advertising space on his websites.

Finally, as to causation, the court adopted the studios’ interpretation of causation and held that the acts of infringement by third parties need only be caused by the product distributed or services provided.  This was contrary to Fung’s theory of causation (which was also joined by amicus curiae, Google) wherein Fung claimed that the infringement must be directly caused by a defendant’s inducing messages.

The Digital Millennium Copyright Act “Safe Harbor” Provisions

Fung also asserted affirmative defenses under three of the DMCA’s safe harbor provisions, 17 U.S.C. §512(a), (c) and (d). Although the studios argued that there can never be a DMCA safe harbor defense to contributory copyright liability inducement, the 9th Circuit disagreed, noting that the safe harbor provisions do not exclude vicarious or contributory liability from its protections. Even so, the court denied all of Fung’s safe harbor defenses.

In particular, the court concluded that Fung did not qualify for protection under §512(a) for transitory digital network communications because Fung’s torrent file trackers, not the third party users, were responsible for selecting the copyrighted data to be transmitted.

The court also concluded that § 512(c), relating to information residing on networks or systems at the direction of the users, was also not applicable because Fung had actual and “red flag” knowledge of infringing activity on his system due to his own active encouragement of infringement, as well as the fact that Fung did not dispute evidence that he personally used his isohunt.com website to download infringing material.

According to the 9th Circuit, Fung did not qualify for protection under §512(c) or §512(d) (for providers of information location tools) because Fung received a “financial benefit” from his services by selling ad space and because he had the “right and ability to control” the infringing activity, which was shown through evidence that Fung exerted substantial influence on the activities of the users of his websites.

Finding no available defenses under the DMCA safe harbors, the court affirmed summary judgment for the studios on the issue of liability under contributory copyright infringement.  However, the court found various terms of the lower court’s permanent injunction to be vague and unduly burdensome and remanded to the district court to modify certain employment prohibitions and to provide more specific language for several terms in the injunction.

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Protect Your Trademark Online: Global Trademark Clearinghouse to Begin Accepting Submissions

The National Law Review recently published an article by Karen Artz AshBret J. DanowRoger P. FureyDoron S. GoldsteinPeter J. Riebling, and David B. Sherman of Katten Muchin Rosenman LLP regarding Trademarks and the Global Clearinghouse:

Katten Muchin

 

On March 26, 2013, the Internet Corporation for Assigned Names and Numbers (ICANN) will begin to allow trademark owners to submit their marks for inclusion in a newly created Trademark Clearinghouse, which is intended to serve as a single centralized database of verified information that will enable trademark holders throughout the world to better protect their rights on the Internet. This follow-up to “New Generic Top-Level Domain Names: What Brand Owners Need to Know” (June 15, 2012) introduces brand owners (and their licensees, assignees and agents) to several key elements of the Trademark Clearinghouse submission process, and describes the primary benefits that the Trademark Clearinghouse promises to provide to trademark rights holders.

Background

ICANN, the private nonprofit corporation that manages most top-level domains (TLDs) and IP addresses, developed the Trademark Clearinghouse (in connection with Deloitte and IBM) as part of its new generic Top-Level Domain (New gTLD) Program. Generally speaking, the New gTLD Program allows any legal entity to file an application to create a new gTLD—the general domain name address extensions that come after the last dot (such as .com, .net., .org)—and, as a result, has the potential to significantly expand the existing Internet infrastructure by increasing the number of gTLDs to an almost unlimited amount (and simultaneously expanding the potential for online trademark infringement). Amid this expansion, the Trademark Clearinghouse was created to protect trademark rights holders by permitting them to more easily register second-level domain names under new gTLDs (e.g., YOURNAME.example), and to allow gTLD operators and registries to better review and assess trademark claims.

The Submission Process

The Trademark Clearinghouse will initially accept and verify for registration (1) nationally or regionally (i.e., multi-nationally) registered trademarks; (2) court-validated marks; and (3) marks protected by statute or treaty. Trademarks that are the subjects of pending applications or are inactive or invalid may not be registered.

Although the specific type of information and documentation required to verify a trademark record will vary depending on the type of mark, the Trademark Clearinghouse will generally require trademark rights holders to submit information regarding the mark itself, details about any applicable registration, court reference numbers or other documentation evidencing rights, the goods and/or services covered and the corresponding Nice classification(s), the country(ies) in which the mark is protected, the name and contact information of the trademark rights holder, and, for purposes of obtaining applicable Sunrise Services, certain verification of proof of use of the mark, which may include a signed declaration and specimen(s) of trademark use (e.g., labels, tags, containers, advertising and marketing materials). All trademark submissions will be subject to verification by Deloitte Enterprise Risk Services.

This verified trademark data will support the two primary benefits that the Trademark Clearinghouse promises to provide to trademark rights holders: Sunrise Services and “Trademark Claims” for all new gTLDs. The cost charged by ICANN for making a submission to the Trademark Clearinghouse will vary from US$95 to US$150 per year for a single mark, with discounted fees available to trademark rights holders who seek registration for three years (US$435) or five years (US$725). The Trademark Clearinghouse’s submission guidelines and basic fee structure are available for download at its official website.

Sunrise Services

By registering a trademark with the Trademark Clearinghouse, a trademark rights holder will be permitted to register second-level domain names under new gTLDs (e.g., YOURNAME.example) during a “Sunrise” period of at least thirty (30) days before registration of such names is made available to the general public. All new gTLD applicants are subject to this mandatory “Sunrise” period after the registration of the new gTLD with a registry. Access to “Sunrise” registration will provide trademark rights holders with a relatively low-cost means by which to obtain some level of control of, and some ability to safeguard, second-level domain names comprised of their trademarks.

Trademark Claims

Registering a trademark with the Trademark Clearinghouse will also entitle a rights holder to a “Trademark Claims” service following the “Sunrise” period. This “Trademark Claims” service will extend for at least the first sixty (60) days after a new gTLD is open for registration with the general public. At the outset, the “Trademark Claims” service will provide a warning of potential infringement to any third party attempting to register a domain name that matches a trademark registered with the Trademark Clearinghouse. In the event that the third party proceeds to register the domain name despite such a notice, the “Trademark Claims” service would send an automated notification to the trademark holder alerting it to the potential infringement. Although the Trademark Clearinghouse will not bar registration of the potentially infringing domain name, the “Trademark Claims” notice will expeditiously inform the rights holder and enable it to consider whether to take action.

As a practical matter, the “Trademark Claims” service will only identify identical matches to eligible trademarks. In other words, “Trademark Claims” notices will only be generated if the domain name label consists of the complete and identical textual elements of the trademark registered with the Trademark Clearinghouse. As a result, even a domain name containing a plural version of the mark would not be considered an identical match. Typos and “trademark + generic term” domain name labels also would not be considered identical matches. To the extent a trademark contains any special character that cannot be represented in a domain name, e.g., “@” or “!,” such character may be either omitted, replaced by hyphens, or spelled out with appropriate words of the official language(s) of the country/jurisdiction in which the mark is protected. Accordingly, if a trademark rights holder is interested in obtaining additional protection against the use and registration of infringing domain names, it may wish to work with legal counsel and use a private domain name watching service.

Conclusion

The launch of the Trademark Clearinghouse marks a phase of ICANN’s New gTLD Program that would appear to be particularly significant to brand owners and licensees. In view of the numerous ways in which the New gTLD Program promises to alter the existing Internet infrastructure, trademark rights holders may wish to consider the benefits of early registration with the Trademark Clearinghouse and work with counsel to develop other cost-effective strategies to protect their trademarks and other valuable intellectual property rights.

©2013 Katten Muchin Rosenman LLP

Operational and Technical Changes for FACTA Compliance – January 30 – February 1, 2013

The National Law Review is pleased to bring you information about the upcoming Global Financial Markets – Operational and Technical Changes for FACTA Compliance:

key topics

  • Assess the full implications of the finalized FATCA regulation
  • Coordinate an optimal approach to operational, infrastructural and technical changes under FATCA
  • Identify strategies to effectively manage client accounts
  • Integrate existing internal procedures with FATCA compliance
  • Understand what is expected by the IRS

key features

  • Pre-Conference Workshop on January 30, 2013 for an Additional Cost:
  • Pre-Conference Workshop: The Intergovernmental Agreements: Changing the Face of International Tax lead by JP&MF Consulting and Mopsick Tax Law LLP

event focus

FATCA is amongst the biggest topics of debate in financial institutions across the globe. The effect that it will have on these institutions cannot be underestimated and its operational impact on the existing systems is set to be both time consuming and costly. The ability to successfully align all key stakeholders, including operations, technology, risk, legal and tax, will determine the ultimate cost of FATCA compliance. Moving on from mere interpretive matters, this GFMI conference will not only address key FATCA requirements but also discuss the practical impacts of IGAs and strategies for achieving operational and infrastructural efficiency.

The Operational and Technical Changes for FATCA Compliance Conference will be a two and half day, industry focused event, specific to Senior Executives working in Banks, Insurance and Asset Management Companies. Attendees will address key FATCA requirements, while discussing the practical implications of IGAs and strategies for achieving operational and infrastructural efficiency.

Key Themes of the Operational and Technical Changes for FATCA Compliance Conference Include:

1. Challenges of FATCA regulations and prospects for the final regulation

2. Achieving operational and infrastructural efficiency

3. Coordinating existing AML/KYC procedures with FATCA compliance

4. FATCA from the FFI’s perspective 5. Beyond banking: the challenges of FATCA implementation

6. Coping with the withholding obligation under FATCA

This is not a trade show; our conference series is targeted at a focused group of senior level executives to maintain an intimate atmosphere for the delegates and speakers. Since we are not a vendor driven conference, the higher level focus allows delegates to network with their industry peers.