R5 - Pship Other Flashcards
Foreign income taxes paid by a corporation may be claimed as
either a deduction or credit, at the option of the corporation
What authority does the IRS have over an affiliated group that file a consolidated US tax return
The IRS has the authority to adjust upward or downward the gross income and deductions between or among certain organizations to prevent the evasion of taxes or to clearly reflect the income of two or more organizations.
An affiliated group is
a group of businesses having operations in several countries
Transfer pricing issues arise when
A US based taxpayer shares costs, transfers, sells, purchases, leases tangible property or intangible property to or from and enters into loan agreements or service contracts with an affiliate that either:
is not subject to US income tax or
does not file a consolidated income tax return w the US based taxpayer
What is the Advanced Pricing Agreement Program (APA)
a binding contract between the IRS and the taxpayer by which the IRS agrees not to seek a transfer pricing adjustment for a covered transaction if the taxpayer files it’s return for a covered year consisten with the agreed transfer pricing method
What activities may trigger nexus in a state in which a company operates?
Owning or leasing tangible personal or real property
Sending employees into the state for training or work
Soliciting sales in a state
Providing installation, maintenance, etc. to customers within a state (even through a third party)
Accepting or rejecting sales orders within the state, or accepting returns
Collection of delinquent accounts
A corporation will allocate it’s non business income to
the home state ( the state of the taxpayers commercial domicile or residence)
A corporation will apportion its business income based on
the extent of the corporations activities and property within a state
Calculation of apportionment factor
(property and rent expense within the state/total property
+
payroll paid to employees within the state/total payroll
+
sales from sources within the state/total sales)/3
3 factor apportionment
property
payroll
sales
Note: if average value given - use average value
For a CFC,
a foreign corp is considered a CFC if more than 50% of its stock is owned by a US shareholder on any day of the year.
income of a CFC is not included in income until the earnings are paid as a dividend to the US shareholder
certain types of income (passive investment income) earned are subject to immediate taxation
A foreign branch is
an unincorporated foreign entity that is viewed as an extension of the domestic corporation
foreign tax now and foreign tax credit or deduction
Nine items of income that should be treated as sources of income from within the US
interest
dividends
personal services
rents and royalties
disposition of US real prop interest
sale or exchange of inventory property
underwriting income
social security benefits
guarantees
Foreign income is sourced into what four categories
Passive category income (dividends, interest, rents, royalties)
General category income (active business income)
Foreign branch incomeGlobal intangible low-taxed income (GILTI)
Foreign Tax Credit Limitation
Lesser of:
foreign tax paid or
pre-credit us tax on total TI * (foreign source income/total TI)
Foreign Derived Intangible a income is transactions involving
non-US persons located outside of the US
Note: includes sale of property, services provided, property sold)
Deduction amount is 37.5%
Who is eligible for a 100% DRD
corporate shareholders who own at least 10% of the foreign corp
not eligible are:
subpart f income
GILTI
Income invested in US property
Income subject to the transition tax
Passive Foreign Investment Company (PFIC) test
75% of gross income is passive or 50% of total assets are passive
What income is subject to US withholding tax?
fixed, determinable, annual or periodic (FDAP) income
examples:
dividend income
interest income
payment to a foreign financial institution (FATCA)
A shareholder of a foreign corp is considered a US shareholder if
the shareholder is a US person who owns at least 10% of the stock value OR voting stock
The base erosion and anti-abuse tax (BEAT) may apply to corporations
with average annual gross receipts of $500 million or more for the three preceding tax years
Form 1120–F US Income Tax Return of a Foreign Corporation reports
income earned by a US branch
