1Circumstances when transfer pricing issues exist
Types of transactions:
1. Property
2. Agreements/contracts
3. Costs
With an affiliate that either:
1. is NOT subject to US income tax
2. does NOT file a consolidated income tax return
2What's the purpose of BEAT?
The goal is to eliminate erosion of the tax base through deductible payments to related foreign affiliates.
3Which type of entity is permitted to defer ...taxes?
Think nontaxable entities first! Key being "defer taxes"
Then think which of those owes tax more often, usually S corporations!
4What's a controlled foreign corporation (CFC), and what rules apply?
When US shareholders own more than 50% of a foreign corporation's stock. A US person must own 10% of a foreign corporation's stock to qualify as a US shareholder.
The only situation in which Subpart F Income rules apply, and will power over other rules. Subpart F - passive income or active income tied to a related party are subject to immediate taxation by the US shareholders.
5How to determine US source vs. foreign source income?
-The sale of purchased inventory is sourced where title passes.
-Income from personal services is sourced where the service is performed.
6What is the global intangible low-taxed income (GILTI) inclusion?
a U.S. shareholder's share of a CFC's net income, reduced by the excess of: (1) 10 percent of the CFC's aggregate adjusted basis in depreciable tangible property used in its trade or business, over (2) the CFC's net interest expense.
Meant to reduce the incentive to relocate CFCs to low-tax jurisdictions.
7What is the substantial presence test?
A foreign person must be
-present in the US for at least 31 days during the current year AND
-present in the US for at least 183 days for a 3-year period
if they hold a permanent resident visa ("green card"), they don't have to meet the requirements.
8How to calculate increase in earnings invested in US property by a CFC
the average adjusted basis of the CFC's U.S. property for the tax year (calculated at the close of each quarter) is compared with the adjusted basis at the end of the preceding tax year.
Current year (Q1 + Q2 + Q3 + Q4 / 4) - Prior year amount (same as current year Q1)
9What's an interest charge domestic international sales corporation (IC-DISC)?
A tax-exempt entity that pays no tax on commissions received from a US corporation, the feature that creates tax savings for these entities
10What are the withholding tax regimes for nonbusiness income?
-Fixed, determinable, annual, or periodic income (FDAP)
Withholding on foreign persons' investment-type income
-Foreign account tax compliance act (FATCA
Withholding on foreign entities for failure to provide information to US recipients
11How to calculate estimated payment using annualized income method?
You take the income earned so far x full 12 months out of months so far. Then multiply this annualized amount by their tax rate, and subtract estimated payments already made to get the remaining estimated payment.