ssrn-id314800 - 1 U.S Taxation of Foreign Corporations in...

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Electronic copy available at: http://ssrn.com/abstract=314800 1 U.S. Taxation of Foreign Corporations in the Digital Age Michael J. McIntyre, Professor of Law Wayne State University 55 (9/10) Bulletin for International Fiscal Documentation 498 (2001) Contents I. INTRODUCTION II. U.S. TAXATION OF THE BUSINESS PROFITS OF FOREIGN CORPORATIONS A. Overview B. Taxation of effectively connected income 1. Allowable deductions 2. Defining effectively connected income 3. Force of attraction rule 4. Effectively connected investment income 5. Foreign-source effectively connected income 6. Source of income on sales of tangible property C. Engaged in trade or business 1. In general 2. Purchase and sale of tangible personal property III. U.S. TAXATION OF INCOME DERIVED FROM ELECTRONIC SALES OF PERSONAL PROPERTY WITHIN THE UNITED STATES A. Overview B. Status of a virtual office under the office source rule C. A virtual office as a permanent establishment 1. Speculating on original intent 2. The new OECD Commentary 3. Newly minted physical presence test 4. Impact of the new OECD Commentary on U.S. tax treaties IV. CONCLUDING REMARKS I. INTRODUCTION The United States taxes foreign corporations only on that portion of their income derived from economic activities that have some nexus with the United States. The highly technical rules that the United States has developed for determining whether the necessary nexus has been established are addressed in this article. The operation of those rules depends, in substantial part, on the U.S. rules that determine the source of income. The U.S. source rules, however, are addressed only briefly here. The U.S. rules established by the Internal Revenue Code of 1986, as amended (I.R.C.) for taxing foreign corporations
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Electronic copy available at: http://ssrn.com/abstract=314800 2 1 For a more detailed discussion of the U.S. tax rules, see McIntyre, Michael J., The International Income Tax Rules of the United States , two volumes (Lexis Publishing, 2000; loose-leaf), Chapter 2. Some portions of this article are adapted from that treatise. 2 Internal Revenue Publication (IRS) Publication 16, revised September 2000, Table 10 (97COALCR.EXE available at www.irs.gov/tax_stats/soi/int_fc.html (for 1997). 3 Hobbs, James R., "Foreign-Controlled Domestic Corporations, 1997", 20/1 SOI Bulletin 122 (Summer 2000), at 123. are modified in important ways by U.S. tax treaties. Although the focus of this article is on the U.S. rules, tax treaty rules are addressed when necessary to explain how the U.S. rules actually operate or are likely to be interpreted. Part II of this article presents an overview of the U.S. rules for taxing foreign corporations on business income derived from the United States. 1
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ssrn-id314800 - 1 U.S Taxation of Foreign Corporations in...

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