International Law Outline

International Taxation

Spring 2018

Alabama

Hopper

Taxability

· FP => source

=> TB => regular U.S. income tax

=> No TB => 30% gross withholding

· USP => worldwide

· USP => Substantial presence

· Exempt individuals

· Medical conditions

· Closer connection

· First year election

Source

· Interest

· USI =>

· From U.S., a U.S. state or D.C

· From non-C resident

· From DC

· USB of FC => USI

· FB of DC or PS engaged in commercial banking => FSI

· Interest Expense

· Apportion based on nature of assets

· USS => look through to its assets

· FS => No, just basis of stock owned

· (1) Did asset produce USI or FSI

· Tracing approach => What did TP do with the borrowed money?

· Fungibility => Why did TP borrow money? (main approach)

· (2) Apportion b/w USI and FSI using the relative value of US and F assets

· Tax book method => AB

· 10% owned FC => “basis bump” => adjust up for EP, adjust down if EP deficit

· FMV of assets

*Want as much US as possible to keep FSI high

· Dividend

· DC payor => USI

· FC payor => look through => past 3 years, 25%/more of GI ECUSTB => Yes =>

· USI = [(dividend) x (GI ECUSTB during 3 years /total GI during 3 years)]

· Of USI dividend just because of 25% rule => no withholding tax

· Royalty and Rent

· Tangible => where property is physically located

· Intangible => Where rights are used (where property derives legal protection)

=> Royalty v. Compensation for Personal Services

· Royalty => should have property rights apart from tax law

· Fixed price => Sale => residence rule (tax home)

· Contingent price => Royalty

· Compensation for Personal Services

· Within US => USI

· Performing personal services in US is TB (subject to de minimis)

· Abroad => FSI

· Part in/Part abroad => Apportion on the basis that most correctly reflects the proper source of income under the facts and circumstances of the particular case

· Compensation received by an individual employee => time basis

· Unless => TP persuades IRS that an alternative basis more properly determines the source

· De Minimis

· NRA

· No more than 90 days present

· No more than $3,000

· Services performed as EE or IC

· For F person/entity not ETB

· For F office/branch of US person/entity

· Covenant not to Compete

· Not in code

=> Where you would have competed

· Sales

· Offices or fixed place of business

=> overrides all other provisions => USI

· Unless => Purchased inventory is sold for use outside the US and a F fixed place of business “materially participates” in the sale => FSI

· Real property

· USRPI => USI

· Personal Property

=> Resident of seller => “tax home”

· Inventory

· Purchase

=> Passage of title

· Manufacture

=> Divide b/w sales and production

· 50/50 method => default

=> Then source the manufacturing and sales

· IFP => if TP regularly sells part of its output to wholly independent distributors

· Price independent distributors pay for same inventory

MINUS

· COGS

=> Production