TaxConnections


 

Tag Archive for CFC

The Reality Of Owning A Controlled Foreign Corporation After Trump’s Tax Reform

Do you know that owning a Controlled Foreign Corporation got affected by New Tax Bill? In a nutshell, Trump’s tax reform now means that all income is Subpart F income. In addition, all currently untaxed retained earnings will be subject to a one-time tax. Read further if you want to find out what it means exactly and how U.S. expats with CFCs are affected.

Let’s take a quick look at a few changes that were introduced in recent tax legislation. Generally, Trump’s tax reform benefits individuals who are struggling with their finances by doubling standard deductions, i.e. from $6,000 to $12,000 for singles, and reducing the rates for five tax brackets of the existing seven. Read more

U.S. Now A Black-Listed Country For Purpose Of Italy’s CFC Rules

Pursuant to the Tax Cuts and Jobs Act (“TCJA”) passed on Dec. 22, 2017, the U.S. will tax U.S. corporations with the following tax rates:

– 21 percent general corporate income tax rate,
– 13.125 effective tax rate on U.S. corporation’s foreign derived intangible income (“FDII”), for taxable years from 2018 through 2025;
– 10.5 percent effective tax rate on the U.S. corporation’s pro rata share of global intangible low taxed income (“GILTI”) of a controlled foreign corporation (“CFC”). Read more

Tax Alert (Italy) – Budget Law For 2018 Introduces Major Developments To Domestic Tax System

This is the fourth of a series of posts on the major developments introduced by Law No. 205 (enacting the Italian Budget Law for 2018),

Individual taxation – Modification of black-list criteria for CFC purposes: taxation of profits accrued and distributed in different fiscal periods and under different rules Read more

Tax Alert (Italy) – Budget Law For 2018 Introduces Major Developments To Domestic Tax System

This is the third of a series of posts on the major developments introduced by Law No. 205 (enacting the Italian Budget Law for 2018),

Corporate taxation – Partial exemption of dividends distributed by CFCs.

According to current Italian rules, profits realized by non-resident subsidiaries are deemed to exist under the CFC legislation (article 167(4) of the ITA) if the relevant nominal rate in the foreign jurisdiction (other than EU and EEA countries) is lower than 50% of the combined IRES tax (rate 24%) and IRAP tax (rate 3,9%). Read more

Garlock: How Not To Structure A Controlled Foreign Corporation

Hale Stewart

A CFC is a foreign corporation where a U.S. shareholder owns “more than” 50% of the offshore company. Practitioners quickly noted the 50% ownership requirement and correctly deduced that, if a non-U.S. shareholder owned the remaining 50%, the foreign corporation could escape being a CFC.

Read more

U.S. Persons And Their Investments In Foreign Corporations

It’s like the popular song from Disney, “It’s a Small World After All”! And it’s getting smaller as we speak! The global entrepreneur is a common phenom. Of course this leads to more tax compliance issues. The tax compliance issues can be solved by hiring a knowledgeable tax professional. To give you an overview of the requirements, here’s some information:

What is Form 5471?: If you are a U.S. person or a resident, and are an officer/ director or shareholder in certain foreign corporations, you have reporting requirements to satisfy Sections 6038 and 6046, and the related regulations. This is done via Form 5471.

Generally all U.S. persons or residents falling under the requirements of the Categories of Filers as specified in the instructions have to file Form 5471. The form has to be attached Read more

Dividends From Foreign Corporations Part III – “Controlled Foreign Corporations”

As will be recalled from the previous blog posting that discussed so-called “Controlled Foreign Corporations” (CFC), a United States shareholder of a CFC can possibly be treated as having received “dividend” income at various times. These are when the US shareholder (i) has current income inclusions from the CFC under the anti-deferral regime (Subpart F income); (ii) has amounts actually distributed to him that had not been previously taxed as Subpart F income (these are ‘actual’ dividends); (iii) has amounts actually distributed to him that had been previously taxed as Subpart F income and (iv) recognizes gain on the sale of his CFC stock and the CFC has undistributed earnings and profits.

The question arises whether any of these amounts (i)-(iv), can be treated as “qualified dividend income”? Full details about the tax beneficial treatment of “qualified dividend Read more

Dividends from Foreign Corporations Part 2 – “Controlled Foreign Corporations”

As detailed in my last blog posting, “qualified dividend income” is taxed at beneficial lower tax rates and can be received from both domestic (US) corporations and certain “qualified” foreign (non-US) corporations. A “qualified foreign corporation” excludes a so-called “Passive Foreign Investment Company” or, PFIC. Subject to this limitation, the term “qualified foreign corporation” means any foreign corporation that is incorporated in a possession of the United States or that is eligible for the benefits of a comprehensive US income tax treaty which the IRS has determined is satisfactory for qualified dividend purposes. In addition, a foreign corporation will be treated as a “qualified’ with respect to any dividend paid by the corporation on stock which is readily tradable on an established securities market in the United States. The Internal Revenue Code does not exclude a so-called “controlled foreign corporation” Read more

NIIT-Picky Nuances for Americans Overseas or With Offshore Investments

If you meet the requirements, your 2013 tax return will reflect the new 3.8% Medicare surcharge imposed on high wage earners. This tax is more commonly called the “Net Investment Income Tax” or (“NIIT”). Many people are confused with the taxation of capital gains and the NIIT. There is even greater confusion because the rules governing application of the NIIT contain nuances with regard to Americans working overseas and with regard to so-called nonresident alien individuals (NRA).

Let’s start with some basics:

What is the NIIT / 3.8% Medicare Surcharge?

The NIIT is, broadly speaking a 3.8% surtax on “net investment income”. It applies only to Read more

United States CFC Rules: What Income Is Included?

The CFC (Controlled Foreign Corporation) rules regarding income inclusion have to thread a very small needle. On one hand, they need to prevent United States taxpayers from moving offshore, thereby taking advantage of a technical reading of the United States tax code that prevents taxation of non-US (foreign) corporations (see Part I and Part II). On the other hand, they can’t be so restrictive they prevent United States corporations from expanding internationally, thereby hindering legitimate business development. In effect, the rules need to exclude income derived from “legitimate” business expansion but include evasion.

Before moving forward, be advised: below is a general summation of the CFC income inclusion rules: there are many nuanced ins and outs to these rules that are far beyond the Read more

“Investment In United States Property” – Tax Court Affirms – Inclusion Is Not Qualified Dividend

iStock_US HousekeyXSmallIn Osvaldo Rodriguez et al V. Commissioner, the fifth circuit court recently upheld the decision in a transaction involving inclusion of IRC 956 income with respect to the taxpayers’ Controlled Foreign Corporation (CFC) in Mexico.

Osvaldo and Ana Rodriguez, husband and wife, were citizens of Mexico and permanent residents of the United States. They were the sole shareholders of Editora Paso del Norte, S.A. de C.V. (Editora). Editora had been incorporated in 1976 under Mexican law and in 2001 had established operations in the U.S. as a branch under the name Editora Paso del Norte, S.A. de C.V., Inc. — a controlled foreign corporation (CFC).  On their amended 2003 and original 2004 U.S. federal income tax returns, the taxpayers included in gross income $1,585,527 and $1,478,202, respectively, for amounts of Editora’s earnings invested in U.S. property and taxable directly under IRC 951(a)(1)(B) and IRC 956.

Taxpayers treated the IRC 951 inclusions as qualified dividend income subject to preferential qualified dividend rates. IRS determined that the Code Sec. 951 inclusions were taxable at ordinary income rates.

The fifth circuit upheld the decision and ruled that the amounts included in the Rodriguez’s gross income under IRC 951(a)(1)(B) and IRC 956 with respect to their CFC’s investments in U.S. property were not qualified dividend income under IRC 1(h)(11).

IRS changes instructions for Forms 5471 and 8621

Form 5471:

  1. IRS now requires a creation of Refrence ID of the foreign corporation and this must be completed for all years ending on or after December 31, 2012.
  2. According to AICPA – “ The most notable change and one that the AICPA has recently addressed in a comment letter to the IRS, is the constructive ownership exception which was previously available to Category 3 and 4 filers only. The exception has now been extended to all Category 5 filers where ownership in the foreign corporation is solely through application of constructive ownership principles and the U.S. person through whom the U.S. shareholder constructively owns an interest in the foreign corporation files Form 5471 reporting all required information. “
  3. Other changes can be found in “What’s new” section of Form 5471.

Form 8621:

  1. In the filer identification section, a line has been added to request the reference ID number of the PFIC or QEF.
  2. New Part I, Summary of Annual Information was added to reflect the new annual filing requirement of section 1298(f) which was added by section 521 of the Hiring Incentives to Restore Employment Act of 2010. However, this new Part I is not required until the underlying regulations are published. For now, they have been marked as Reserved For Future Use. Form 8621 will be revised when Part I becomes effective.
  3. The elections in Part II of the form have been reordered and the filing requirements for new elections F, G, and H have been modified. Please complete Part II carefully with these changes in mind.
  4. See instructions for all changes very carefully.
Meet Tax Experts At TaxConnections...