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Hahn F06 International Tax

Hahn F06 International Tax - What does International Tax...

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What does International Tax Cover? o Foreigner earns income but has a connection to the US o US citizen or permanent resident earns income outside of the US. In this case, you can be taxed twice: by the foreign government as well as the US o Inbound Transactions – investments of foreigners in the US o Outbound Transactions - Investments of US persons abroad Steps taken to determine Applicable Rules o First determine the status of a transaction under the general US tax rules. o Once the nature of the income is determined, you must determine whether the transactions connection to a foreign country will cause the US internal international tax rules to apply o Finally, one must determine if a treaty with a foreign country applies that will benefit the client’s tax treatment The US applies different rules to US citizens and foreign nationals: o US Citizens US citizens are taxed on their worldwide income Cook v. Tait (35) o US citizen domiciled in Mexico asked US court for refund of his tax money. The court held that while state governments can only tax on transactions within its borders, the federal government can tax its citizens anywhere on anything, as the Federal government confers benefits even upon citizens who are not living in the United States. Italian guy is a US citizen because he was born in the US when his parents were on vacation. He lives in Italy. Still, as a US citizen, he is subject to US tax laws. US engineer works in France for a few months. He is subject to tax US citizen opens a bank in the Cayman Islands and earns money through Japanese bonds. He is still subject to US tax laws US citizens are entitled to a foreign tax credit, subject to certain limitations In general, the US permits US citizens to credit their US tax liability the amount of money they have paid to foreign governments, as a way of avoiding double taxation. This is very costly to the US government, so there are consequently sever limitations on this general rule. The US citizen earning money from a foreign source can elect to receive his tax break as either a credit or deduction It almost always makes more sense to claim a credit, because it reduces, dollar for dollar, the amount of US tax that you will pay. If you owe $35 dollars to the US, but already paid $20 to the French, you only have to pay $15 to
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the US. If you take a $20 deduction, however, that simply reduces your amount of gross income; you will certainly end up paying more than $15 to the US government. o Foreigners ECI – Income effectively connected with a trade or business within the United States is subject to US income tax at the regular graduated tax rates Foreign clothing chain sells clothing at a profit from their store in NYC. This is effectively connected income Non ECI Income – Income from US sources that is not considered “effectively connected Income” is subject to a flat tax rate of 30% A US corporation pays dividends to a French resident and citizen who had bought shares in the company.
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