Hahn F07 International Tax Outline

Hahn F07 International Tax Outline - BASIC RULES OF...

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BASIC RULES OF TAXATION - US persons are taxed on world-wide income - US persons are entitled to foreign tax credit - Foreigners are taxed on income that is effectively connected with a trade or business in the US (ECI) - Foreigners are taxed on income from US sources that is not considered ECI on a flat tax rate DETERMINE US VS. FOREIGN PERSON/ENTITY ENTITY US - if the corporation was formed in the US - a corporation that was formed under the laws of a US state is considered to be a US corporation (even if it was formed by foreign citizens, etc) – section 7701(a)(4) - partnerships are not taxpayers for US tax law purposes – income tax consequences are attributed to the respective partners and will depend on whether the partner is a US or foreign person o if an organization 50% of equity of which is owned by a US person and 50% by nonresident alien and that was formed under the US law is considered: a corporation it will be subject to US taxation on worldwide income a partnership, the partnership’s income taxable to the US partner will include partner’s share of the partnership’s worldwide income, whereas the partnership income of the nonresident alien will include only that partner’s share of the partnership income from US sources or ECI income - a trust is considered to be a US trust for tax purposes if o a US court exercises primary supervision over administration of the trust and one or more US fiduciaries have authority to control all substantial decisions of the trust – section 7701 (a)(30(E) FOREIGN - an entity will be considered a foreign corporation if it was formed under the laws of country other than the US - there is a characterization system for determining whether an entity is a corporation or a partnership - many types of foreign business entities may elect classification as a partnership or as a corporation for tax purposes - a foreign estate for purposes of US tax is an estate that is taxable by the US in a manner similar to a nonresident alien individual and is not subject to taxation on its worldwide income – section 7701(a)(31)(A)
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Classification of Entities - US legal entities are corporations, partnerships, LLCs and trusts - Foreign entities for US tax purposes, include corporations, partnerships, trusts, estates or entities that are disregarded for tax purposes - The classification of business entities, both US and foreign, is made under a system that in many instances permits a taxpayer to elect whether to have a business entity treated as a corporation or a fiscally transparent entity (partnership for US tax purposes or disregarded as an entity separate from its owner) – reg. 301-7701-2, -3 - Not all business entities may elect their classification for US tax purposes Mechanism for the classification of foreign entities under the US law o (1) Determine if the legal arrangement creates a separate legal entity in the first place (this is an obvious question regarding corporations and partnerships). If NO, then it is not classified as a separate entity (i.e. a branch is not a
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Hahn F07 International Tax Outline - BASIC RULES OF...

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