main navigation
my pace

Law360 | PACE UNIVERSITY

News & Events

Sort/Filter

Filter Newsfeed

News Item

Law360 featured Pace University in "Real Estate Rumors: Neville Rodie, NeueHouse, Pace"

03/09/2020

Law360 featured Pace University in "Real Estate Rumors: Neville Rodie, NeueHouse, Pace"

Pace University has acquired a 30-year leasehold for a 215,000-square-foot development project in New York's financial district, according to a Friday report from Commercial Observer. The university is taking 126-132 Nassau St., where REIT SL Green Realty Corp. is building a new tower that Pace will use for dorms, classrooms, a dining facility and a library, according to the report, which did not indicate the price for the deal.

Read the full Law360 article.

News & Events

Sort/Filter

Filter Newsfeed

News Item

Law360 featured law professor Bennett Gershman in "With DA Out, What’s Next For Curtis Flowers?"

01/13/2020

Law360 featured law professor Bennett Gershman in "With DA Out, What’s Next For Curtis Flowers?"

That high court opinion likely soured Evans on the case, said Bennett Gershman, a former Manhattan assistant district attorney and now a law professor at Pace University with expertise in prosecutorial misconduct.

“The Supreme Court was highly critical of his conduct, and that may have influenced his decision to leave the case,” Gershman said. “He didn’t want another mark against him. He’s already got a number of them.”

Read the full Law360 article.

News & Events

Sort/Filter

Filter Newsfeed

News Item

"Law360" featured Bridget Crawford, professor of taxation at the Pace University Elisabeth Haub School of Law, in "3 Ways Trump Will Save 'Bigly' With Florida Move"

11/05/2019

"Law360" featured Bridget Crawford, professor of taxation at the Pace University Elisabeth Haub School of Law, in "3 Ways Trump Will Save 'Bigly' With Florida Move"

No Estate Tax or Inheritance Tax

New York’s estate tax goes up to 16% for taxable estates worth more than $10 million. It is likely the president fits into this category. In Florida, which has no estate tax, Trump’s heirs will owe the state nothing upon his death.

“If President Trump’s estate is large enough to be subject to the estate tax, his change of domicile just saved his family a whole lot of money,” said Bridget Crawford, professor of taxation at the Pace University Elisabeth Haub School of Law.

Depending on the size of Trump’s estate, it would still have to pay a 40% tax to the federal government, which is owed tax on all estates valued at least $11.4 million. However, there, too, Trump’s beneficiaries are protected, since the estate and not the beneficiaries are liable for the tax.

Read the full Law360 article.

News & Events

Sort/Filter

Filter Newsfeed

News Item

"Law360" featured Lubin's Associate Professor Philip Cohen in "4 International Tax Cases To Watch In The 2nd Half Of 2019"

07/15/2019

"Law360" featured Lubin's Associate Professor Philip Cohen in "4 International Tax Cases To Watch In The 2nd Half Of 2019"

A handful of high-stakes transfer pricing cases will continue to play out this year, including Coca-Cola's fight against a $3.3 billion tax bill and a dispute over what, exactly, Amazon included among the intangibles it licensed to a European subsidiary.

At their cores, all the cases concern whether the Internal Revenue Serviceabused its discretion in reallocating income to U.S. companies from their foreign affiliates. Each dispute, however, grapples with this question in a different way.

In Coca-Cola's case, the beverage maker has claimed the IRS turned its back on a transfer pricing method after allowing it for years under an expired agreement. Meanwhile, Amazon.com Inc. and Medtronic Inc. are involved in separate disputes with the agency about how to value contributions from one affiliate to another.

At stake in a long-running fight brought by technology and manufacturing company 3M Co. are tax regulations that disregard foreign legal restrictions in some cases.

Here, Law360 looks at four cases that international tax specialists will be watching in the second half of 2019.

Can Amazon Make an Affiliate Pay for a 'Culture of Relentless Innovation'?

Amazon's dispute centers on a cost-sharing arrangement the Seattle-based company entered into in 2005, under which its Luxembourg affiliate, Amazon Europe Holding Technologies SCS, was granted the right to use certain intangible assets in Europe in exchange for an upfront “buy-in payment.”

The IRS made substantial transfer pricing adjustments that reallocated income from AEHT in Luxembourg to Amazon in the U.S. and accordingly assessed more than $234 million in deficiencies for the 2005 and 2006 tax years. However, the U.S. Tax Court found in March 2017 that the methods Amazon used to determine payments from AEHT for the licensing of intellectual property were reasonable.

The IRS appealed Amazon's win to the Ninth Circuit. During oral arguments in April, an IRS attorney told a three-judge panel that the government should be allowed to apply the discounted cash flow valuation method, or DCF, to more accurately value — and more broadly define — the intangibles Amazon transferred to its Luxembourg subsidiary.

Meanwhile, the tech giant's counsel attacked the government's position that language in a 1994 regulation effectively expanded the definition of intangibles to include “residual business assets.”

The IRS counts Amazon's “corporate culture” among the intangibles that the affiliate should have paid for. This position is inherent to the DCF method, according to Carolyn Frantz, senior counsel at Orrick Herrington & Sutcliffe LLP.

“If the corporate culture in any way contributes to the value of the Amazon enterprise writ large … then that's going to be included in the discounted cash flow valuation,” she said. “But it's still not in the list that's in the regulations.”

During oral arguments, the IRS counsel claimed that corporate culture fell under the phrase “and other similar items” in the regulations.

In addition to corporate culture, the IRS has argued that Amazon's residual business assets include the company's “significant growth options resulting from its culture of relentless innovation,” according to court filings.

Steven Dixon, a member in the tax department at Miller & Chevalier Chtd., said these “far-reaching and abstract intangibles” suggest the government is using the DCF method in an attempt “to capture a portion of any future income that comes out of the cost-sharing arrangement.”

That outcome is not what the law provides, he added.

The panel's questions and remarks during oral arguments, Dixon said, suggested the panel will affirm the Tax Court's decision. He noted the panel was “clearly concerned” about companies relying on the cost-sharing regulations.

“I think that taxpayers have thought of cost sharing as a kind of safe harbor, because that's clearly how it's constructed as long as you've done what is necessary under those cost-sharing regulations,” he said.

The case is Amazon.com Inc. v. Commissioner of Internal Revenue, case number 17-72922, in the U.S. Court of Appeals for the Ninth Circuit.

Has Coca-Cola's Transfer Pricing Agreement Gone Flat?

At stake in Coca-Cola Co.'s transfer pricing case are tax deficiencies of $3.3 billion for the years 2007 to 2009. That amount is based on IRS income allocations of $9.4 billion to the Atlanta-based company from units in seven countries including Mexico, according to a petition filed in December 2015.

The IRS had determined the Mexican unit was paying its parent company a less-than-arm's-length royalty for licensed intangible property, such as beverage bases and other intellectual property used to make the drink. After adjusting that royalty, the IRS found the Mexican licensee had a reduced income and was therefore paying too much in tax to the Mexican government.

However, in granting partial summary judgment to Coca-Cola in December 2017, Tax Court Judge Albert Lauber reinstated the $139 million in foreign tax credits that the IRS had denied the beverage giant. The rest of the case went to trial in March 2018, and the trial lasted roughly two months. The case is currently in the post-trial briefing process.

In his ruling, Judge Lauber noted that the royalty payments were calculated under a method that both the IRS and the Mexican tax authority had signed off on more than two decades ago — a method Coca-Cola's tax adviser recommended using even after the government agreements expired.

Judge Lauber noted that the question of whether a foreign tax is “compulsory” also rests on whether the U.S. company exhausted all remedies to reduce its liability. In siding with Coca-Cola on this matter as well, he pointed out that the IRS had refused to participate in administrative proceedings.

In ruling for Coca-Cola on this issue, “the court got it completely right,” said Philip Cohen, who teaches in the legal studies and taxation department of the Pace University Lubin School of Business.

As he put it, the IRS accused Coca-Cola of failing to exhaust all practical remedies by not taking the case to competent authority proceedings, but the IRS also said it wouldn't participate in the proceedings — which would have involved negotiating with the Mexican government — because it had set the case up for litigation.

“It's a Kafkaesque fact pattern where the service said you have to go to competent authority, but we're not going to allow you to go to competent authority,” Cohen said.

The case is Coca-Cola Co. v. Commissioner, docket number 31183-15, in the U.S. Tax Court.

Do the Regulations in 3M's Case Have Standing?

The $24 million Tax Court case involving 3M Co. centers on royalty payments owed from the company's Brazilian unit of technology and manufacturing in 2006. The amounts were due under trademark license agreements forged in 1998.

While the IRS has allocated net royalty income of $23.6 million from 3M do Brasil Ltda. to the U.S. parent, the amount is actually much lower, just under $166,000, according to Minnesota-based 3M. The company contended that the IRS unlawfully failed to account for restrictions that Brazilian law places on royalty payments.

Because Brazil set a fixed ceiling — in line with tax deductions for royalties — on how much can be paid for the licensing of patents, unpatented technology and trademarks, the IRS can't legally allocate amounts that a taxpayer can't receive, 3M argues.

For its part, the IRS has cited regulations enacted in 1994 that disregard a foreign legal restriction to the extent it “generates an economic outcome that is inconsistent with an arm's-length result.”

The Brazilian legal restrictions that 3M relies on “to avoid an arm's-length result” don't preclude income allocations because there isn't any evidence that the restrictions affected unrelated parties under comparable circumstances, the IRS has said in court filings.

Meanwhile, 3M has argued the regulations are invalid under the Administrative Procedure Act, or APA, because the U.S. Treasury Department “provided no rationale whatsoever.”

Peter Connors, a colleague of Frantz's at Orrick whose practice focuses on cross-border transactions, said the 3M case was similar to chipmaker Altera Corp.'s challenge against cost-sharing regulations.

In that case, Tax Court Judge L. Paige Marvel found in July 2015 that Treasury had failed to adequately explain its contention that the rules were consistent with the arm's-length standard. The Ninth Circuit overturned the Tax Court's ruling in June.

“Given the Tax Court's analysis in Altera of what steps Treasury must take to follow the APA, I'd be surprised if the government won,” Connors said of the 3M dispute. He noted that Judge Marvel's decision had the unanimous agreement of 14 other Tax Court judges.

In 1972, before the enactment of the regulation at issue in 3M's case, the U.S. Supreme Court ruled on income restrictions in Commissioner v. First Security Bank of Utah  . In that decision, the high court ruled that an allocation of income isn't allowed when a legal restriction negates “the complete power” of a company to control the distribution of income among its affiliates.

The Sixth Circuit cited the First Security ruling in a 1990 decision for Procter & Gamble Co. in a case that involved a foreign legal restriction on royalty payments. Cohen, at Pace University, noted that when the decision was issued, there wasn't a conflicting regulation and the appellate court “logically applied the Supreme Court case.”

“I think a regulation that restricts the First Security Bank Supreme Court decision in certain cases with respect to foreign law doesn't make conceptual sense,” he said.

The case is 3M Co. et al. v. Commissioner of Internal Revenue, docket number 5816-13, in the U.S. Tax Court.

Will the Tax Court's Explanation of Its Medtronic Ruling Make the ‘CUT’?

Like the 3M case, Medtronic's transfer pricing dispute stems from accusations that the IRS overstepped its authority.

The Tax Court squarely rejected the IRS' $1.36 billion tax deficiency calculation in June 2016, finding that the agency's calculations for intercompany license royalty rates didn't reflect a Puerto Rican subsidiary's contributions to the medical device maker's profits.

However, the Eighth Circuit struck a blow to Medtronic in August 2018 when it vacated the Tax Court decision and ordered Judge Kathleen Kerrigan to justify more extensively her determination that Medtronic's overall transfer pricing method was correct.

When arguing before the Eighth Circuit, the IRS contended that Judge Kerrigan had failed to apply the required regulatory analysis in selecting the comparable uncontrolled transaction, or CUT, method for determining the arm's-length royalty rate that the Puerto Rican subsidiary owed Minnesota-based Medtronic for licenses in 2005 and 2006.

According to the agency, Judge Kerrigan had skirted the analysis required under transfer pricing regulations when she concluded that a license agreement between Medtronic and a company that had been its competitor, Siemens Pacesetter Inc., was a CUT.

For its part, Medtronic characterized the IRS' arguments as a challenge to the factual findings that led to the Tax Court's valuation method rather than to the valuation method itself. The medical device maker noted that Judge Kerrigan had found the subsidiary was its own autonomous unit operating at arm's length, which she took into account when valuing the licenses and calculating the royalty rates.

While the narrow issues in this case are specific to Medtronic, the Eight Circuit's decision may encourage the Tax Court to elaborate on its explanations in the future, according to Frantz at Orrick.

But beyond that, “I don't think it's going to have any real effect on transfer pricing law going forward,” she said.

The case is Medtronic Inc. et al. v. Commissioner of Internal Revenue, docket number 6944-11, in the U.S. Tax Court.

--Additional reporting by Vidya Kauri, Molly Moses and Alex M. Parker. Editing by John Oudens and Tim Ruel. 

Read the article.
 

News & Events

Sort/Filter

Filter Newsfeed

News Item

"Law360" featured Pace University's Elisabeth Haub School of Law Professor Bennett Gershman in "4 Things To Know About The Jeffrey Epstein Charges"

07/10/2019

"Law360" featured Pace University's Elisabeth Haub School of Law Professor Bennett Gershman in "4 Things To Know About The Jeffrey Epstein Charges"

The Case Will Hinge on Victims' Testimonies

In his defense of the nonprosecution agreement with Epstein, Acosta has said that the case was a difficult one and that many victims were reluctant to testify.

Bennett Gershman, a professor at Pace Law School and an expert on prosecutorial misconduct, said he thinks there were enough victims to prosecute Epstein more than a decade ago, and their ranks have likely swelled since then.

"Maybe the victims are now more mature and clear thinking, and the #MeToo movement certainly galvanized a lot of women to come forward with cases they might not have brought," Gershman said. "But these women did 10 years ago. They weren't secret. They came forward against this big shot powerful man with powerful friends."

The problem is that witness testimony becomes less reliable with time, according to Weinstein.

"It's going to be dependent upon these witnesses recalling instances," he said. "With corroborating evidence they can corroborate some of these things, but ultimately, it is going to come down to the recollection of the victims. And as we all know, as time passes, your recollection is not as good."

New York prosecutors hinted in the indictment at some corroborating evidence, and in a memorandum asking the court to deny pretrial release for Epstein, they said that law enforcement officers found specific evidence inside Epstein's New York City mansion that was consistent with victims' recollections of the home.

Prosecutors also said officers found hundreds of sexually suggestive photographs of fully or partially nude women, many of whom looked underage.

Read the full article.

News & Events

Sort/Filter

Filter Newsfeed

News Item

"Law360" featured Pace University's Lubin School of Business Legal Studies and Taxation Professor Frank Colella in "Ex-KPMG Partner, Regulator Found Guilty Of Info Theft"

03/15/2019

"Law360" featured Pace University's Lubin School of Business Legal Studies and Taxation Professor Frank Colella in "Ex-KPMG Partner, Regulator Found Guilty Of Info Theft"

...Frank Colella, a tax lawyer and certified public accountant who teaches business law at Pace University, said the wire fraud convictions were “not small potatoes,” but that the jury’s rejection of the conspiracy against the U.S. count suggests the charge may have been “a stretch” by prosecutors.

“It really basically boils down to what the PCAOB is,” he said. “It’s not a U.S. agency. It’s a not-for-profit organization.”

Post-trial motions, such as a request for the judge to acquit the defendants despite the jury’s verdict, are set to be filed and briefed in the coming months. Sentencing was scheduled for August.

The only remaining defendant in the case is David Britt, the former co-leader of KPMG's Banking and Capital Markets practice, who was granted a separate trial to begin in the fall at a closed-door hearing.

Read the full article.

News & Events

Sort/Filter

Filter Newsfeed