Regulations Of The International Context

2317 Words Jun 6th, 2016 10 Pages
IV. CTB Regulations in the International Context
Similar to domestic entities, foreign business entities are classified as either a corporation, partnership, or disregarded. With small exception, one entity from each major country is a “per se” entity and always taxed as a corporation. All other foreign organizations are able to take advantage of the CTB regulations and elect to be treated as partnership for U.S. federal tax purposes. The CTB regulations, when dealing with domestic entities, look at whether there is at least one owner of the entity that does not have limited liability. This is an interesting distinction between the treatment of domestic and foreign entities because in the domestic context entity classification is important from the creation of the entity. In contrast, for a foreign entity, the classification is “relevant only when its classification affects the liability of any person for federal tax or information purpose.” This impacts the ability of the entity to change its classification in the future. For entities that existed before the CTB regulations were in place, transitional rules govern whether the entity is able to keep their previous classification.
The entity classification rules in most foreign jurisdictions are not as easy to satisfy as the CTB regulations. In practice, this means that U.S. organizations are able to elect the U.S. tax classification for most entities even though the foreign jurisdiction may always tax the entities as…
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