TAX 9869 Lecture Notes - Lecture 44: Withholding Tax, Passive Income

5 views3 pages
17 Jul 2020
Department
Course
Professor
Class 7: 6/29/2020
Review:
Last class discussed withholding tax on FDAP income and how a nonresi. alien/foreign
corp would be subject to taxation in the US
Went through rules of FIRPTA (US real ppty interest)
Talked about being engaged in USTB
Now
Part of ECI (Effectively connected income)
If a foreign person is deemed to be engaged in USTB they then could possibly be
subject to US taxation on effectively connected income
ECI:
generally speaking, it is income that is income connected to USTB
What makes something ECI?
Generally, If income is connected with USTB and that income is US source income, then
that income will be ECI
EX: if you have a US corporation and it performs services in US, it’s subj to tax
if you have a foreign corp and it has employees in US and provides services
activity=continuous, regular, then that foreign corporation seems very well like it
has a USTB
Income from those services is sourced to the US and that income would
be ECI and taxed to the foreign corporation in the US as ECI on a net
basis (income-deductions)
What about income sourced outside the US?(FS)... is it also ECI?
Generally, if income is FSI it will not be ECI
GR: US source income from USTB generated by foreign person = ECI → taxed in US
If FSI then NOT taxed to foreign corp its not considered to be ECI
But where do we have situation where foreign source income could still be treated as ECI?
If any of the income is from foreign sources, it would be ECI by a nonresi
alien/indiv/foreign corp IF that foreigncorp/nonresi alien has an office or fixed place of biz
within the US and the income is attributable to that office/fixed place of biz and would
consist of any of the following examples:
Rents, royalties for using intangibles from trade/biz=ECI
interest/dividends for guarantees of indebtedness if its attributable to office/fixed
place of biz even tho FSI its still considered to be ECI bc activity is attributed to
US activity
If its sale of inventory or property, how do we source sales? If its bought and sold
is sourced to where title passes
If foreign corp has no office or fixed place of biz in US, then FSI not
subject to US tax, BUT if foreign corp has office or fixed palace of biz in
US and that sale/exchange of property/inventory is made through office or
fixed place of biz then that income from that sale is treated as ECI and it
WOULD be subject to US tax
If sale of property/inventory is attributable to office/fixed place of biz in US
its subj to US taxation = ECI
Unlock document

This preview shows page 1 of the document.
Unlock all 3 pages and 3 million more documents.

Already have an account? Log in

Get OneClass Notes+

Unlimited access to class notes and textbook notes.

YearlyBest Value
75% OFF
$8 USD/m
Monthly
$30 USD/m
You will be charged $96 USD upfront and auto renewed at the end of each cycle. You may cancel anytime under Payment Settings. For more information, see our Terms and Privacy.
Payments are encrypted using 256-bit SSL. Powered by Stripe.