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International Taxation
University of Missouri School of Law
Cecil, Michelle Arnopol

International Tax Outline – Cecil – Fall 2015
International Tax Overview
Worldwide Taxation – country will tax citizens & residents on all income they earn, whether in the country or outside
Territorial Tax – country will only tax on income earned within the boundaries of this country
Repatriation Holiday
Any dividends that were repatriated back to the US from a foreign subsidiary were taxed at 5%, significantly lower
Rules for International Tax
Subchapter N of the code – §§ 861 – 999
Four International Taxation Models
Double Tax Model
Money would be fully taxed in both country earned in and the country the person is a citizen or resident
US does not use this
Exemption Tax Model
Basically allows up to 80k [plus inflation] that an individual earns outside the US not to be taxed in the US
Credit Tax Mode
Allows you to get a credit against one country tax for the tax you paid in a foreign country
Not all taxes are creditable b/c they are not enough like US income tax for us to consider them income taxes
Taxed at a higher rate – only let you credit up to the US tax
Deduction Tax Model
Can deduct what you paid in taxes from the income amount, but then taxed on that amount
Pay more than with a credit
Jurisdiction to Tax and International Tax Policy
US Citizens and Residents
·         Three types of Jurisdiction taxed by the US
o   Citizen Jurisdiction
Justify it with military protections with diplomats and such
§ 877(b) – if you renounce your citizenship and move out of the country for tax avoidance purposes, then the day you leave, you are assumed to have sold all of your assets at their fmv
Triggers a realized gain on all of this property
Used to be a facts and circumstances test, but now it's a bright line rule
If you save more than x amount in taxes, assumed to have left for tax purposes
o   Residence Jurisdiction
Reg. 1.871-1(8) – even if not a US citizen, if you are a resident, you will be taxed on your worldwide income as if a citizen
If organized under US laws, entities and partnerships are both subject to the taxation
§  Individuals – § 7701(b)
·         The Lawful Permanent Resident Test
Two requirements to be taxed as a resident:
[1] The Green Card Test – § 7701(b)(1)(A)(i)
Individual has been admitted to the US as a legal immigrant
[2] Status as a legal immigrant has not been revoked – § 7701(b)(6)(B)
Reg. 301.7701(b)-1(b)(2)&(3) – you must go to the government yourself to revoke your status
If you purposely get your immigrant status revoked for tax avoidance purposes, we will treat you as an immigrant and tax you regardless
·         The Substantial Presence Test
Use 3-year look back test – guts in § 7701(b)(3)
[1] 3 year 183 day test
Have to be in the country an average of 183 days for three years
Average = (days current year * 1) + (days one year ago * 1/3) + (days two year ago * 1/6)
[2] 31 days present in the current year
If you meet, treated as a resident – § 7701(b)(1)(A)(ii)
Any hour in the US makes that entire day count
Unless you are in the US for less than 24 hours AND you are passing from one country to the other – § 7701(b)(7)(A)
Residency Start and End Dates
Start – § 7701(b)(2)(C)
Residency starting date shall be the first day in the calendar year for when the individual is present in the US –
But if you can establish a closer connection to a foreign country than US for 10 days or less, then you can disregard those days
End – § 7701(b)(2)(B)
Closer connection the day after he leaves to a foreign country other than the US
Exempt Individuals for Purposes of Substantial Presence Test
Teachers, students, trainees – § 7701(b)(5)(a)(ii)
Guts are in § 7701(b)(3)(d)(i)
§ 7701(b)(5)(c) says an individual temporarily available under a J or Q visa complies
Cannot be a teacher/student for more than 2 of the 6 previous years
Student exemption denied after an individual has been exempted as a student, trainee, or teacher for five calendar years un

iod with the first day of the 31 day period and ending with the last day of the election year for a number of days equal or exceed 75% of the days in the testing period
Can count five days present even if gone, but only if trips are for 5 days or less
If you don't meet the entire test the first 31 days, can switch to the following 31 days
§ 7701(b)(2)(C)(ii) – you will not be counted as a resident for any days that there is a closer connection to another country
Only 10 days per year
o   Source Jurisdiction – covered below
Role of Tax Treaties
A treaty is an agreement b/t two countries that tries to harmonize the countries tax systems and prevent double taxation
Negotiated by treasury department and ratified by the Senate
Considered the supreme law of the land – equal footing with statutes
Later in time rule applies, but courts will bend over backwards to find no conflict so a treaty is not violated
Domestic Activities of Foreigners
Sourcing Rules
·         Sourcing Rules for Everything (but personal property)
o   § 861 – generally defines what is US SI
§  Interest – § 861(a)(1)
GR: interest is generally sourced by the resident of an individual payor or place of incorporation of a corporate payor
Exception – § 861(a)(1)(A) – foreign banking exception
Interest on a foreign deposit with a foreign branch of a domestic corporation [US banking corp.] will be fsi
Interest on deposits with a domestic corporation or partnership are fsi if the deposits are 'with' a foreign branch of the corporation or partnership and the branch is engaged in the commercial banking business