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
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The taxable income earned by a foreign company is not taxable in the United States until it returns to the corporation 's U.S. corporate parent by way of a corporate dividend or a sale of the stock in the foreign subsidiary. When a foreign company operates in a low tax jurisdiction, the U.S. parent can achieve U.S. tax deferral. When a dividend is paid or the stock of a subsidiary is sold, the parent corporation may be entitled to a foreign tax credit.
Various anti-deferral provisions have been enacted such as the foreign personal holding company rules, the controlled foreign corporation rules, and the passive foreign investment company rules. These anti-deferral rules stipulate that U.S. members that own foreign corporations are required to directly recognize certain types of income that are earned by the foreign corporations even though no distributions have been made. Deferral tax planning is based in large part upon avoiding application of the various anti-deferral regimes.
A dividend paid by the foreign subsidiary of a domestic corporation or the sale of the stock in a foreign corporation by a domestic parent typically is taxable to the domestic parent in the United States. However, under IRC § 902, the dividend or sale normally entitles the domestic parent to a foreign tax credit in the United States for part or all of the taxes paid by the foreign subsidiary abroad. The amount of foreign tax credits that can be generated
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