M5 Multi-Jurisdictional Tax Issues Flashcards
Definition: Means any transaction or transfer between two or more members of the same group of controlled taxpayers
Controlled transaction
Parent –> Sub
Sub –> Parent
Definition: Means any transaction between two or more taxpayers that are NOT members of the same group of controlled taxpayers
Uncontrolled transaction
Company –> Customer
Means the uncontrolled transaction that is compared with a controlled transaction or with a controlled taxpayer
Uncontrolled comparable
Definition. Standard to assure that reported prices that one affiliate charges to another affiliate yield results that are consistent with the results that would have been realized if uncontrolled taxpayers had engaged in the same transaction under the same circumstances
Arm’s Length Standard (applies to related party transactions = company customer transaction results)
Definition. When the taxpayer requests that the IRS and the taxing officials in the other country(ies) ascertain the appropriate transfer price so that the taxpayer group is not taxed twice on the same income
Competent authority
-Advanced ruling to get the IRS to approve before the transaction is done
Definition. Mission is to resolve actual or potential transfer pricing disputes in a timely, principled and cooperative manner
Advance Pricing and Mutual Agreement Program (APMA)
Definition. Defined as the minimum level of contact a taxpayer may have with a jurisdiction to be subject to its tax
Nexus (state and local income tax)
State Income Tax Considerations. Three circumstances that prohibit a state from imposing a net income tax (under PL No. 86-272)
1) Only business in the state is solicitation/advertising for sales of tangible personal property
2) Orders are sent outside the state
3) Orders are accepted, and filled by shipment or delivery from a point outside the state
*DOES NOT APPLY TO sales and use taxes, franchise taxes, and gross receipts taxes
State Income Tax Considerations. Definition: NONbusiness income (income does not relate to the primary business activities of the corporation within the state) are usually ____
ALLOCATED
Process of removing the nonbusiness income from line 28 and assigning it entirely to the state where it should be taxed (usually state of residence)
State Income Tax Considerations. Definition: business income are usually ____
APPORTIONED
Calculation of Apportionment Factor
DIVIDED by 3
Foreign Entities. Definition: UNICORPORATED foreign entity that is viewed as an extension of the domestic corporation; not a separate legal entity
Foreign BRANCH
Foreign Entities. Definition: Separate legal entity, INCORPORATED under the laws of the foreign host country
Foreign SUBSIDIARY
Foreign Entities. Foreign BRANCH tax consequences - profits/losses earned are taxed where?
US - treated as being earned directly by the domestic corporation (generally they are also tax by the foreign host country too)
Foreign Entities. Foreign SUBSIDIARY tax consequences - profits/losses taxed where?
Taxed by the HOST country
-When earnings are brought back to the US in form of a dividend, taxed by the US (deferred)
