Tax Treaties | TaxConnections

09 Sep 2022

International Tax Concepts: Dual-Status Taxpayers

A taxpayer’s status as a resident or nonresident is not always straightforward. A dual-status taxpayer, for example, may qualify as both a nonresident alien and a resident alien during the same tax year. Typically, this dual status occurs in the year that the taxpayer arrives in, or departs from, the United States. A dual-status taxpayer may be subject to one set of rules for part of the year and another set of rules for the other part of the year — and may qualify for certain elections, such as the first-year election discussed below.

Keep in mind, we are talking about tax status here. Dual status, as used here, does not imply citizenship. It simply refers to whether a person is a “resident” of the United States for tax purposes.

Who is a Dual-Status Taxpayer?

Written by Jason Freeman | Posted in Dual Status Taxpayers • Tax Treaties

23 Mar 2022

United States Taxes Effectively Connected Income

Effectively Connected Income

Unlike FDAP income, the United States taxes effectively connected income (“ECI”) on a net basis. Effectively connected income is income that is effectively connected with the conduct of a U.S. trade or business. It also includes gains from the disposition of U.S. real property under FIRPTA, which are treated as ECI.

Generally, when determining whether income constitutes effectively connected income, the IRS employs two tests: (i) the asset-use test; and (ii) the business-activities test. The asset-use test looks to whether the income or gain is derived from assets used in, or held for use in, the conduct of the trade or business in the United States. The business-activities test looks to whether the activities of the trade or business were conducted in the United States and were a material factor in the realization of the income or gain at issue.

What Is Effectively Connected Income?

Written by Jason Freeman | Posted in Effectively Affected Income • Tax Treaties

14 Oct 2021

Biden Administration Overriding Tax Treaties. Does This Mean Existing Treaties Are Worthless?

https://twitter.com/andygr/status/1444980907354513410

(The above tweet was a response to a recent article in the Financial Post.)

Introduction

This post is a comment on yesterday’s Tax Connections post “Ranking Members Warn Against Bypassing Treaty Process“. As is well known the United States has been hugely supportive of the International Tax Reforms known as “Pillar 1” (granting source country taxing rights to certain profits earned by certain multinationals) and “Pillar 2” (establishing a global minimum tax on the profits of certain multinationals). Apparently 136 of 140 countries have agreed to the two Pillars of international tax reform. The agreement signified a country’s commitment to make the necessary domestic changes to meet its international obligations.

Written by John Richardson | Posted in Tax Treaties • TaxConnections

12 Nov 2020

Tax Treaties: The United States And Canada

Quick Summary. In 1867, the United Kingdom passed a Parliamentary act establishing what is now known as Canada. Today, Canada, the largest country in the Western Hemisphere, is a federation of ten provinces and three territories.

Following its formation in 1867, Canada’s new government was provided with the power to raise money by taxation. Moreover, the new government was divided between the federal government and the provincial governments. Generally, the federal government was tasked with providing railways, roads, bridges, and harbors. Conversely, the provincial governments were responsible for providing its citizens with education, health, and welfare.

Canada’s federal government did not initiate a formal income tax until World War I. Due to its involvement in the war and its need for war funds, Canada’s federal government established a corporate tax in 1916. A year later, the federal government introduced the Income War Tax Act, which added an income tax regime on individuals. In 1948, the Income War Tax Act was replaced with the Income Tax Act. Today, the Canada Revenue Agency and various provincial governments administer the federal and other tax laws in Canada.

Written by Jason Freeman | Posted in Tax Treaties

09 Oct 2020

A Short Primer On Tax Treaties: Canada Tax Treaties Spotlight

https://deadline.com/feature/movie-productions-postponed-coronavirus-hollywood-films-1202882857/

In addition to the U.S. and foreign statutory rules for the taxation of foreign income of U.S. persons and U.S. income of foreign persons, bilateral income tax treaties limit the amount of income tax that may be imposed by one treaty partner on residents of the other treaty partner. Treaties also contain provisions governing the creditability of taxes imposed by the treaty country in which income was earned in computing the amount of tax owed to the other country by its residents with respect to such income. Treaties further provide procedures under which inconsistent positions taken by the treaty countries with respect to a single item of income or deduction may be mutually resolved by the two countries.

The preferred tax treaty policies of the United States have been expressed from time to time in model treaties and agreements. The Organization for Economic Cooperation and Development (the “OECD”) also has published model tax treaties. In addition, the United Nations has published a model treaty for use between developed and developing countries. The Treasury Department, which together with the State Department is responsible for negotiating tax treaties. The OECD has published a model income tax treaty (“the OECD model”). The United Nations has also published a model income tax treaty (“the U.N. model”).

Written by Jason Freeman | Posted in Canada Tax Treaties • Primer On Tax Treaties • Tax Treaties