Going Global and US Tax
Considerations
OBJECTIVES
 Define Basic Filing Requirements
 Explain Relief from Double Taxation
 Review International Scenarios and the
US Tax Implications
 Note US Tax Forms for Foreign Activity
 Discuss Potential Tax Issues
 Describe Process and Structure at IRS
People who complain about taxes can
be divided into two classes, men and
women.
Of death and taxes, both are certain,
but only taxes can get you an
automatic extension.
Income tax has made more liars out
of Americans than golf.
Paying taxes means you have a job.
You are
here
Your customers
& vendors
In General . . . . .
 Domestic (U.S.) entity
 Worldwide Customers & Vendors
(Canada, Mexico, UK, South America,
Singapore, and all points in between)
 Buy and Sell worldwide
16th Amendment
“The Congress shall have power to
lay and collect taxes on incomes,
from whatever source derived,
without apportionment among the
several states, and without regard
to any census or enumeration.”
… from whatever source
derived …
Entity Classification - Domestic
 Sole Proprietorship (Form 1040)
 S-Corporation (Form 1120-S)
 C-Corporation (Form 1120)
 Partnership (Form 1065)
Entity Classification - Internationally
 U.S. Branch
 Corporation
 Partnership
 Hybrid Entity
“Must choose wisely”
Double Taxation
 U.S. taxes on “worldwide” income
 Taxed by U.S. on income within the U.S.
 Taxed by U.S. on income outside the U.S.
 Foreign jurisdictions impose income
taxes too (territorial taxation)
Double Taxation Relief
 Foreign Tax Credit reduces double-taxation
(U.S. and foreign) of the same incomes
 Subject to limitations
 May deduct the tax instead of credit
 Carry forward unused credits for 10 years
 Characterize as active or passive
Foreign Tax Credits Issues
 Computing Errors
 Translation Errors
 Sourcing of Income
 Passive vs. Active
 Cash Basis vs. Accrual
GLOBAL SCENARIOS
Do Nothing Scenario
 US mfg. of biological 3-D printer
 Has worldwide sales associates
 Sells directly to customers
 Pays commission to sales associates
 Tax implications – All US sourced
income and expenses
U.S. Branch
 Client opens office in Toronto
 Register as an unincorporated entity
and files all necessary Canadian paper
work
 No advice from CPA or Attorney
 Tax implications – All US sourced
(consolidated on US return)
Corporation
 Client sets up a corporation in Mexico
 Ships directly from Mexico to EU and to
other destinations within Mexico
 How to report income (loss) from
Mexico
 How to report return on investment
Partnership
 Form Partnership by making a contribution
 Partnership conducts R&D and license
products for use in South America market
 Filing Requirements
 How to report income (loss)
 How to report return on investment
Hybrid
 Hybrid entities have a foreign tax
status different from a US tax status
 Example: Foreign Corporation but
US Branch, Section 1504(d) election
 What is best foreign structure and
what is best US tax structure
 Treaties
 Residence
 Filing Requirements
 Withholding Tax
 Sourcing
E&P
 Transfer Pricing
 FTCs
 Subpart F
 E.C.I.
 P.E.
INTERNATIONAL FORMS
 Form 926 – Transfer of Property to Foreign Corp
 Form 5471 – Controlled Foreign Corporation
 Form 8865 – Return with respect to certain foreign




partnerships (note foreign PS files 1065 if ECI or USI)
Form 8858 – Disregarded Entities
Form 1118 – Foreign Tax Credits
TD F -90.22-1 Foreign Bank and Financial Accounts
Form 1042/1042S – Withholding Taxes
Penalties may be assessed
for failure to file certain
international forms.
The penalties can be
substantial and may affect
the statute of limitations
Potential International Issues




Inter-Company Transactions
Inbound / Outbound
Transfer Pricing
Shifting of Income
Allocation and Apportionment of
Deductions
Transfer Pricing
A sells
to B
At Inflated Price
Effect Increase Revenue
to A Increase AGI
Increases Earnings
Effect Increase Cost
to B Decrease AGI
Decrease Earnings
At Discount Price
Decrease Revenue
Decrease AGI
Decreases Earnings
Decrease Cost
Increase AGI
Increase Earnings
Documentation / Production of Records
 Informal Document Request
 Formal Document Request
 Pre-Summons Letter
 Summons
 Penalties IRC §§ 6038, 6038A, 6662
Return filed and
input
How a filed return
flows through
International review
Returns reviewed by
International Agent
No
Stamped “Accepted as
Filed Referral Not
Mandatory”
Yes
Decision made. Should return
be worked by International?
Case stamped
“International – Selected”
Case assigned to an
International Agent to work
Case assigned to field agent with
international aspects involved.
International issues may STILL need to be
worked, and a referral may still be proper.
IRS International Organization
 IRS Commissioner
 Deputy Commissioner, International
 Industry Directors (IBC, IIC, TPO)
 International Field Operations and
Programs
Int’l Field Operations and Programs
Overseas Operations
 Exchange of Information
 Tax Attaché
Programs
 Offshore Voluntary Disclosure
 Global High Wealth / SBSE Int’l
 Transfer Pricing Practice
 APMA
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