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TAX 9869 Lecture Notes - Lecture 19: Controlled Foreign Corporation, Pro Rata

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scarletsnail973
10 Jul 2020
School
Baruch College
Department
Tax
Course
TAX 9869
Professor
peter

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Document Summary

Significance deals w/ subpart f and gilti. Set up fc and not pay tax on income until distr back to me. Ex: us corp and it owns a foreign corp (cfc); any profits in fc would not be subj to us tax to owner until dividend. Not being subj to us tax not talking about fc. Foreign corp only pays us tax if it has ustb and eci to that biz. We"re talking about tax that ussh might have to pay on income earned by fc. Alt) us corp owns fc and you ctb to make it dre then all the income flows up. Fc does not exist for us tax purp//treated as a branch income auto flows up & is treated as if earned by us comp. Old rule went away w/ gilti rules. There was also a backstop to not having the ussh pay tax on foreign corps income which was known as subpart f income.

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Related Questions

Subpart F was created to prevent U.S. citizens and corporationsfrom deferring taxable income through the use of foreign entities.Prior to subpart F, many U.S. taxpayers achieved deferral of U.S.tax on certain kinds of movable income, such as dividends,interest, rents and royalties, by earning such income throughforeign corporations (Subpart F Overview, 2014). Subpart F operatesby treating a U.S. shareholder of a CFC as if it actually receivedits proportionate share of certain categories of the corporation’scurrent earnings and profits and the shareholder is required toreport this income currently in the United States whether or notthe CFC makes a distribution (Subpart F Overview, 2014). Transferpricing refers to the pricing of transactions between controlledentities. Under IRC 382, controlled entities should pricetransactions in the same way that uncontrolled entities would undersimilar circumstances (Overview of IRC 482, 2015). This is the“arm’s length standard”, which means that the price of the productthat a US parent company charges its CFC should be the same as itwould charge to an unrelated party for the same product undersimilar circumstances (Overview of IRC 482, 2015). I do not thinkit is fair that companies do not pay a tax on their foreignprofits. Corporations are able to hold these foreign profitsoverseas for years before bringing them back into the United Statesto avoid taxes. While the tax rates on US corporations are veryhigh, as we have discussed in other weeks, there are still manyloopholes in our tax laws that allow corporations to lower theirtaxes. I believe the corporate tax rates could be a little lowerbut even then the tax rules wouldn’t be changed. LB&IInternational Practice Service Concept Unit Subpart F Overview.(2014, September 3). Retrieved February 10, 2016, fromhttps://www.irs.gov/pub/int_practice_units/DPLCUV_2_01.PDFInternational global corporations are extremely challenging to taxand audit.

Basically, the US company's foreign subsidiaries are foreigncorporations. It's like France taxing US domestic companies, evenif their parent is in France. It just can't really be done.

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