R5 - International Tax Issues Flashcards
What taxation system does the US have?
Worldwide Tax System
What is the FTC limitation?
Lesser of:
- Foreign taxes paid OR
- Limitation Calc = Full US Tax * (FSI/WWIncome)
What is the FTC limitation by basket?
Lesser of:
- Foreign taxes paid OR
- Limitation Calc = Full US Tax * (FSI Basket/WWIncome)
What is the DRD rule for foreign dividends?
- Exempt dividend income from FSI at least 10% of foreign company.
- Allowed only if US company holds stock for more than 1 year during the last 2 years. 2 years begin on date of ex date.
- Not allowed for GILTI, 965, SubF, income invested in US prop.
What are the Anti-deferral rules?
- PFIC
- CFC
What is a PFIC?
A foreign entity that meets the Income test and the Asset Test.
What is the PFIC Income Test?
When 75% or more of the foreign corp gross income is passive.
What is the PFIC Asset Test?
When at least 50% of the foreign corp’s assets are passive (investments)
What are the three methods in which PFIC’s undistributed earnings are subject to US tax?
- Qualified electing fund
- Mark-to-Market method
- Excess distribution method
What is Subpart F income?
- Applies to CFC
- Prorata share of CFC income is SubF
What is GILTI?
- Min tax on low tax income to incentive relocation of FSI to US
- Tested Income - 10% QBAI * Share of Income - GILTI Deduction (50% of GILTI)
What is Earnings Invested in US Property?
- This is non-SubF income, but in the form in a Loan.
- No loans go tax free. They are taxed as if they were repatriated.
- Increase in Earnings Invested in US property is the average of quarterly EB loans (like QBAI).
What is PTI?
A US SH can exclude distributions of a CFC that were PTI to US SH as GILTI, SubF of Earnings Invested in US Property.
What is Transition Tax?
- One time tax.
- Transition from deferred earnings to taxed earnings.
- Cash/Equivalents taxed at 15.5%
- Other earnings taxed at 8%
What is BEAT?
- Min tax to large corps with average annual gross receipts of $500MM with large amounts of deductible payments to related foreign affiliates and with payments to foreign RP greater than 3% of total deductions
- Taxed at 5% (2018), 10% (2019-2026), and 12.5% (after 2026)
How to calculate BEAT?
- Perform test, and get 3% of total deductions.
- BEAT = (Taxable Income + BEAT Deductions)* 10%
- Calculate regular tax.
- Pay greater of BEAT or Reg Tax.
- If BEAT > Reg Tax, then excess is considered BEAT.
FDII
- Deduction for certain export activities.
- Deduction for sale of property to foreign related parties that are subsequently sold to unrelated parties.
- 37.5% deduction
When does Expatriation/Exit Tax applies for individuals?
Considered “covered expatriates” and needs to meet 1 test out of 3:
- Tax Liability Test: Average annual net income tax liability exceeds threshold of 171K for 2020.
- Net Worth Test: $2MM or more on date of expat
- Compliance test: failed to file for 5 precedent years
How to calculate Exit Tax?
(FMV - Basis - 737,000 exclusion) * tax rate
When does Expatriation/Exit Tax applies for corporations?
When a company decides to reorganize its operation under a foreign parent to reduce US tax.
Considered “expatriated entity” and falls into 1 of 2 categories:
1. Continue to be treated as a US Person if former US SH own 80%> in new foreign parent.
OR
2. Denied certain tax attributes such as NOL and FTC to offset your inversion gain if US SH 60%-80% of interest in new parent.
