International Aspects of the US Taxation System

Frontmatter

Chapter 1. Overview

Abstract

This chapter covers the two dominant tax regimes—worldwide and territorial tax regimes—the taxation of individuals and corporations, as well as the current debate over reforming international aspects of the US tax system.

Felix I. Lessambo

Chapter 2. The Underlying Principles of the US Tax System

Abstract

This chapter covers the core principles that govern the US tax system—tax neutrality, tax equity, tax simplicity, fairness, and administrability—as well as their inefficiencies. New ideas and proposals are also discussed.

Felix I. Lessambo

Chapter 3. Inbound Taxation

Abstract

This chapter provides an overview of the challenges and opportunities facing foreign-based multinational corporations in the USA. It explains the complexity of US tax law, the different forms of entity, as well as some tax planning techniques. Both federal and state taxes are analyzed: US withholding tax, transfer pricing, branch profits taxes, and miscellaneous taxes are included.

Felix I. Lessambo

Chapter 4. The Split of Tax Jurisdiction: The Source Rules

Abstract

This chapter explains how income for both individuals and corporations are split among tax jurisdictions in order to avoid double taxation. It explains tax approaches used to determine geographical origin of income, and the deductions thereof.

Felix I. Lessambo

Chapter 5. The US Taxing Regime of Foreign Taxpayers

Abstract

This chapter covers the US concepts of Effectively Connected Income (ECI) US trade or business, the Foreign Activities Deemed US Trade or Business, the electing regime, as well as the determination of taxable Income in the USA.

Felix I. Lessambo

Chapter 6. The Branch Profits Tax

Abstract

This chapter covers the basics of US Branch Profits Tax (BPT), an “extra” form of income tax imposed by the United States on foreign corporations which earn profits from their US operations but which do not reinvest those profits in the USA. The requirements and challenges facing US BPT are also covered.

Felix I. Lessambo

Chapter 7. Foreign Investment in the Real Property Transaction Act

Abstract

This chapter provides outlines Foreign Investment in the Real Property Act (FIRPTA) rules, which authorize the United States to tax foreign persons on dispositions of US real property interests. This includes but is not limited to a sale or exchange, liquidation, redemption, gift and transfers. Persons purchasing US real property interests (transferees) from foreign persons, certain purchasers’ agents, and settlement officers are required to withhold 10 % of the amount realized on the disposition (special rules for foreign corporations). The debate surrounding several proposals to repeal FIRPTA are also covered.

Felix I. Lessambo

Chapter 8. The Taxation of Foreign Sovereign in the United States

Abstract

This chapter covers US taxation rules concerning foreign sovereign activities/investments in the USA, and the limitations thereof, and the activities of sovereign wealth funds in the USA and the current debate over their investments.

Felix I. Lessambo

Chapter 9. The International Tax Treaty

Abstract

This chapter describes and explains how tax treaties operate in cross-border transactions. The situs of an international investment is often determined by the existence of a low tax, reducing a tax treaty in force. However, careful examination must be made as several countries have adopted anti-tax-treaty provisions to challenge treaty benefits to some “residents.” The chapter also identifies the main methods of double taxation relief and their application.

Felix I. Lessambo

Chapter 10. Foreign Account Tax Compliance Act

Abstract

This chapter covers the objective of the Foreign Account Tax Compliance Act (FATCA), and focuses on FATCA reporting: (i) by US taxpayers about certain foreign financial accounts and offshore assets, (ii) by foreign financial institutions about financial accounts held by US taxpayers or foreign entities in which US taxpayers hold a substantial ownership interest. Intergovernmental agreements, documentation and due diligence, and reporting and withholding are also covered.

Felix I. Lessambo

Chapter 11. Taxation Regime of Expatriates and Corporate Inversion

Abstract

This chapter covers the technicalities of the US expatriation regime for both individuals and corporate taxpayers. The focus is on corporate inversion—its several forms, structuring, challenges, and tax policies.

Felix I. Lessambo

Chapter 12. The Investments of US Individuals or Corporations Abroad

Abstract

This chapter discusses the investments of US individuals or corporations abroad: from the business form (subsidiary vs. branch) to the election under the entity classification rules. The use of hybrid, disregarded entities is also covered.

Felix I. Lessambo

Chapter 13. The US Foreign Tax Credit Regime

Abstract

This chapter explains how US foreign tax credit aims to reduce the double tax burden that would otherwise arise when foreign source income is taxed by both the United States and the foreign country from which the income is derived. It goes on to analyze the complexities of the direct foreign tax credit, the indirect foreign tax credit, and the limitations imposed under Internal Revenue Code Section 904, foreign tax credit limitations, redeterminations, and generation.

Felix I. Lessambo

Chapter 14. The Subpart F Regime

Abstract

This chapter covers the various Subpart F regimes: accumulated earning tax, personal holding company tax, the controlled foreign company (CFC) regime. It goes on to discuss Subpart F income (i.e. insurance income, foreign base companies).The income from countries subject to international boycotts and passive foreign investment companies are also analyzed in detail.

Felix I. Lessambo

Chapter 15. Taxation of Derivatives

Abstract

This chapter provides a brief introduction to financial derivative instruments and the complex tax policy issues that they raise. It continues with a brief discussion of current tax law as it applies to options, forwards and swaps, and other complex financial derivatives.

Felix I. Lessambo

Chapter 16. The Taxation of Foreign Currency

Abstract

This chapter covers all aspects of foreign currency taxation from the selection of the functional currency, foreign currency transactions, hedging transactions, and foreign exchange currency compliance.

Felix I. Lessambo

Chapter 17. Domestic International Sales Corporation

Abstract

This chapter describes the status of interest-charge domestic international sales corporation (IC-DISC). It coversstructuralrequirements andthe tax treatment of shareholders. The focus is on the requirements and the structuring of the DISC for maximizing tax benefits.

Felix I. Lessambo

Chapter 18. International Outbound Transactions

Abstract

This chapter starts with an overview of the US tax-free regimes and then describes international outbound transactions, including the transfer of partnership interests, the branch loss recapture rule, the transfer of intangibles, the liquidation of a foreign corporation into a parent corporation, foreign to foreign rules, as well as the distribution of stock of a foreign corporation.

Felix I. Lessambo

Chapter 19. Cross-Border Tax Arbitrage

Abstract

This chapter covers the practice of taking advantage of differential tax treatments across tax jurisdictions. It also analyzes the most commonly used schemes such as the Dual No Tax Residence, the Original Issue Discount, the Hybrid Financing Instrument, the Feline Prides, the REPO, the Lease-Back Transaction, the Entity Classification, the Dual Resident Company, and the Double Dipping schemes.

Felix I. Lessambo

Chapter 20. Base Erosion and Profit Shifting

Abstract

This chapter covers several cross-border base erosion and profit shifting (BEPS) schemes (e.g. lack of Economic Substance, the Dual Non-Residence, Abusive Tax Structure). These have allowed multinational enterprises to save money, while depriving tax authorities from collecting due taxes. The chapter moves on to discuss the three popular mechanisms used by taxpayers: hybrid mismatches, special purpose entities, and transfer pricing.

Felix I. Lessambo

Backmatter