International Taxation Introduction PDF
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Baylor University
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Summary
This document provides an introduction to international taxation, focusing on inbound and outbound taxation. It covers different types of income, such as investment income and business operations income, as well as entity classifications and taxation systems for these different entities. A key concept explored is the taxation of foreign sourced income relative to domestic income.
Full Transcript
**International Taxation Introduction** **Framework** - **Foreign Person** - Examples: - Foreign individual - Foreign Partnership - Foreign Corporation - Income: - US sourced -- taxed in the US - **Inbound Taxation**...
**International Taxation Introduction** **Framework** - **Foreign Person** - Examples: - Foreign individual - Foreign Partnership - Foreign Corporation - Income: - US sourced -- taxed in the US - **Inbound Taxation** - What is your income sourced in/to the US? - US has the first right to tax this income - CBCR (country by country reporting) - Reports where all income is coming from to decide who has right to tax - Pillar 2 -- including GAAP income -- minimum tax rate of 15% - Foreign sourced -- only taxed in foreign jurisdiction - **US Person** - Examples: - Citizen or resident of the US - US Partnership - US Corporation - US estates or trusts - Income - US sourced income -- taxed in the US - Foreign Sourced Income -- taxed in the US - **Outbound taxation** - GILTI -- FTCs (foreign tax credit) - Sub F - FTCs - Dividends -- dividend received deduction (DRD) section 245A in the code - FDII **Entity Classification** **Corporation Hybrid Branch (DRE)** **Disregarded Entity** **Corp -- foreign** **Partnership** **Corp Foreign** **Treated as US Part** **Individual** **Partnership foreign** **Treat as US Corp** **Branch** **\ ** **Inbound**: Foreign person's US sourced income 1. What Income is taxed? US sourced; broken up into 2 categories for admin reasons 2. How are income types taxed? a. Investment Income -- withheld before money gets to recipient i. 30% withholding tax ii. No deductions -- can be reduced by treaties iii. Passive income iv. Dividends v. Interest vi. Sale of stocks vii. Royalties b. Business Operations Income viii. USTB (US trade or business) ix. Effectively connected income x. Taxed at US corporate rate 21% **Outbound**: US person's foreign sourced income 1. What income is taxed? All income -- because we are taxing all income we have the FTC to offset double taxation 2. How are income types taxed? a. Investment Income i. Dividend received deduction ii. Taxed however normally taxed in US b. Business Operations Income -- Branch iii. Do not have GILTI OR SUBF iv. FTC v. Deductions allowed vi. Not a separate legal entity c. Business Operating Income -- Subsidiary vii. GILTI viii. SUB F ix. FTC x. Deductions allowed **Types of Taxation Systems** - Territorial - Taxing all US sourced income for foreign persons - Worldwide - **FTC** **Neutrality** - Capital Export Neutral - World wide - People can invest anywhere and have the same tax result - Kind of what Pillar 2 is trying to do - Capital Import Neutral - Territorial - Whoever is in the territory has the same tax result - National Neutral - Chose to deduct foreign taxes above the line rather than taking ftc - Above the line deduction rather than credits - We have this option in our tax code - Capital Ownership Neutrality - Tax result shouldn't influence who holds asset at the end of the day **US Persons Defined** 1. Citizen or Resident of the US 2. US Partnership 3. US Corporation 4. US estate or trust **Residency** - How is US residency determined? - \_\_\_\_\_\_\_\_\_\_ \_\_\_\_\_\_\_ Test - Substantial \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Test - First year of residency - Carryover Rules - First year election - Last year of residency
