TAX 9869 Lecture Notes - Lecture 30: Gross Income, Foreign Tax Credit

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17 Jul 2020
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Foreign Branch Basket
•Foreign Branch Income Basket
−The determination of “foreign branch income” affects both the foreign tax
credit limitation and FDII
•§ 904(d)(1)(B) creates a separate foreign tax credit basket for foreign
branch income
•§ 250(b)(3)(A)(i)(VI) provides that foreign branch income is excluded from
“deduction eligible income” for purposes of FDII
Important because:
1. Creates sep basket for FTC limitation purposes
2. FDII: foreign derived intangible income
Its an incentive that ONLY US CORPS have from earning income on
sales outside US or royalties recd outside US (income coming from outside
US)
Idea was to bring IP back to US and to be able to increase business
in US
Gave people an export incentive to be able to do that
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If you make a sale thru foreign branch (branch income), that income
doesn't qualify for FDII which allows for lower tax rate on income
Foreign Branch income does not become part of that special
regime; thats another reason why branch income is important
He will tell us its branch income and we need to compute foreign tax
credit limitation sep.
•Foreign Branch Income Defined:
−Section 904 defines “foreign branch income” as the business profits of an
US person attributable to one or more qualified business units as defined in
section 989 in one or more foreign countries. Foreign branch income,
however, does not include any passive category income.
−Gross income is attributable to a foreign branch to the extent the gross
income is reflected on the separate set of books and records of the foreign
branch.
Treas. Reg. 1.904-4(f)(2) exclude from gross income attributable to a
foreign branch
•Income attributable to U.S. activities
•Income arising from stock
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