Tax Consequences Of Current Operations And Alternative Options For Expanding Abroad

2075 WordsDec 6, 20149 Pages
Tax consequences of current operations and alternative options for expanding abroad In terms of the tax consequences that Hall Oakes Inc., a domestic corporation, incurs is in the jurisdiction of the United States. The U.S enforces a credit-based jurisdiction. This means that the U.S claims all worldwide income earned by Hall Oakes Inc. because it was incorporated in the United States. Generally, the U.S allows a foreign tax credit for income taxes paid to foreign countries on the income earned abroad. The domestic sales of Hall Oakes Inc. is simply taxed by the United States. Currently the musical instruments exported to various countries in Europe face more complex tax consequences. The musical instruments are manufactured…show more content…
The foreign tax credit limit is there to ensure that the foreign tax credit does not exceed U.S tax on foreign taxable income. Generally there will be foreign taxes that the corporation will have to pay for their exports abroad. The foreign tax credit is there to stop double taxation, which occurs when foreign countries tax the same income that the U.S. will tax. It is also key to look at tax treaties that the U.S has with various countries in Europe. There might be tax treaties that are very favorable to companies that export from the U.S to certain European countries. Once the income is determined either foreign or domestically sourced, the corporation can then source their deductions. Deductions are allocated based to the particular class of income it generates and then they’re apportioned based on whether the income is foreign or domestically sourced. In this case Hall Oakes Inc. could have some deductions related to their income from export operations. As a U.S exporter, Hall Oakes Inc. should be aware of some circumstances that can arise that may lead to substantial tax consequences in the foreign country. Normally it is important to look for permanent establishment to see if a foreign country will impose taxes on the domestic corporation. Hall Oakes Inc. should be aware that if they have an agent in Europe who can close contracts or if it establishes a sales office in Europe then there more than likely will be potential tax consequences. Tax
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