TAX 9869 Lecture Notes - Lecture 43: Fungibility, Withholding Tax

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17 Jul 2020
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Example:
Called a blocker because the income gets stopped, so instead of foreign
person being engaged in USTB, the blocker corp is engaged in USTB
rather than the partnership
Blocker picks up income thru k-1 and files a US tax return and no longer
the foreign indiv
Could be US or foreign blocker
Blocker structures are expensive for investor bc income is taxed @ blocker level
and then if US blocker that makes distribution, would be US sourced dividend
subject to 30% withholding tax or something under treaty
When $ flows up, the blocker will make a distribution to foreign person, it will cost
them $
Not necessarily cheaper, but reason why foreign persons like them is because
they don’t want to have anything with U.S.; therefore, they block the income
ECI^
US sourced/foreign sourced
Also allocate and apportion expenses- certain expenses go to certain classes of
income
Selling inventory- COGS allocated based on income
If 50% of your sales are US sourced income/50% foreign, you can
reasonably say that the COGS will be allocated 50% to US source
income and 50% to foreign source= net foreign source or net US
source income amount
Sourcing:
Important for FTC and ECI
For ECI, know which income is ECI: US source income from
USTB is generally ECI/foreign source, perhaps not unless one of
the exceptions we mentioned where it would be
Once you know your income, take expenses
You can have a foreign corp that has a lot of activity and
not only engages in a USTB, but also has a lot of activity
across a large span of countries all over the world
Some in US that is ECI/some not
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