Reinsurance Case Invalidates Tax on Foreign-to-Foreign Withholding Transactions

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A “cascading tax” is a tax that is enforced more than once on the income from the same transaction or related transactions. A common example involves a back to back license in which:

• A non-U.S. individual or corporation (“A Co.”) licenses the rights to use intellectual property (“I.P.”) in the U.S. to another non-U.S. corporation (“B Co.”); and
• B Co. then sub-licenses the same rights to use the I.P. to a U.S. corporation (“C Co.”).

J.C.T. Report on Competitiveness – A Step Toward Consideration of New Rules

volume 2 no 4   /   Read article

By Stanley C. Ruchelman

This month, our team delves into the Joint Committee Report addressing international tax reform in a series of articles. Stanley C. Ruchelman leads with comments on the J.C.T. analysis of Subchapter N of today’s Code – the foreign provisions.  See more →

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Tax 101: Tax Planning and Compliance for Foreign Businesses with U.S. Activity

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I. INTRODUCTION

The U.S. tax laws affecting foreign businesses with activity in the U.S. contain some of the more complex provisions of the Internal Revenue Code. Examples include:

• Effectively connected income,
• Allocation of expenses to that income,
• Income tax treaties,
• Arm’s length transfer pricing rules,
• Permanent establishments under income tax treaties,
• Limitation on benefits provisions in income tax treaties that are designed to prevent “treaty shopping,”
• State tax apportionment,
• F.I.R.P.T.A. withholding tax for transactions categorized as real property transfers,
• Fixed and determinable annual and periodical income, and
• Interest on items of portfolio debt.

One can imagine that it is no easy task to identify income that is subject to tax, to identify the tax regime applicable to the income, and to quantify gross income, net income, and income subject to withholding tax. Nonetheless, the I.R.S. has identified withholding tax obligations of U.S. payers as a Tier I audit issue.