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Proposed F.D.I.I. Regulations: Deductions, Sales, and Services

Proposed F.D.I.I. Regulations: Deductions, Sales, and Services

The foreign derived intangible income (“F.D.I.I.”) regime allows for a reduced rate of corporate tax rate on hypothetical intangible income used in a U.S. business to exploit foreign markets.  Many implementation issues that were left open when the provision was enacted have been addressed in proposed I.R.S. proposed regulations issued early March.  In their article, Fanny Karaman and Beate Erwin explain (i) which taxpayers benefit from the regime, (ii) the way deductions are taken into account, (iii) whether the deduction is always available when a U.S. corporation sells on a foreign market, (iv) the way in which foreign use of sales or services is established, and (v) the way in which related-party transactions can qualify as F.D.D.E.I. sales or services.

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Anti-Tax Arbitrage the U.S. Way

Anti-Tax Arbitrage the U.S. Way

Hybrid arrangements come in various forms but share a common goal: Each is designed to enhance beneficial tax results by exploiting differences in tax treatment under the laws of two or more countries.  Anti-hybrid rules were adopted as part of the T.C.J.A., which was enacted in the waning days of 2017.  In December 2018, the I.R.S. released proposed regulations that provide guidance on anti-hybrid rules adopted by Congress.  New terms must be understood, including (i) the deduction/no inclusion (“D./N.I.”) rules, (ii) tiered hybrid dividends, (iii) the hybrid deduction account (“H.D.A.”) that addresses timing, and (iv) a principal purposes test denying the benefit of the dividends received deduction.  If final regulations are adopted by June 22, 2019, they will be effective retroactively to the date of enactment of the statute.  In their article, Beate Erwin and Fanny Karaman explain the workings the proposed regulations.

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More Permanent Establishments: The Dwindling Preparatory and Auxiliary Activities Exception

More Permanent Establishments: The Dwindling Preparatory and Auxiliary Activities Exception

Nothing is certain in this world, except death and taxes – and even taxes are subject to change.  The ever-expanding definition of a permanent establishment (“P.E.”) and ever diminishing exceptions to a P.E. under the O.E.C.D.’s B.E.P.S. Project has made one thing clear – the restrictions local jurisdictions put on activities by foreign taxpayers to trigger taxation are tightening.  The dwindling preparatory and auxiliary activities exception is a prime example.  Neha Rastogi and Beate Erwin explain.

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The I.R.S. Approach to the Dependent Agent Concept

The I.R.S. Approach to the Dependent Agent Concept

When foreign corporations have certain limited activities in the U.S., a question that arises is whether a taxable presence exists in the U.S. for Federal income tax purposes.  A foreign corporate taxpayer with direct activities or operations in the U.S. is subject to U.S. corporate income tax and branch profits tax if it conducts a U.S. trade or business generating effectively connected income. Recently, the I.R.S. Large Business and International division published an international practice unit (“I.P.U.”) addressing the creation of a P.E. through the activities of a “dependent agent.” Fanny Karaman and Beate Erwin lead the reader through the I.P.U. and explain the four-step process that is used by the I.R.S. to evaluate whether a permanent establishment exists.

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Mirror, Mirror, On the Wall, Which Is My Tax Home of Them All? – Foreign Students Face Dilemma in the U.S.

Mirror, Mirror, On the Wall, Which Is My Tax Home of Them All? – Foreign Students Face Dilemma in the U.S.

The U.S. Department of State administers the Exchange Visitor Program, which designates sponsors to provide foreign nationals with opportunities to participate in educational and cultural programs in the U.S. and return home to share their experiences. These students receive taxable stipends, file tax returns, and reduce taxable income by costs associated with participation. Unfortunately, a recent Tax Court case, Liljeberg v. Commr., has determined that the travel and lodging costs of these individuals could not be deducted. Neha Rastogi and Beate Erwin explain that while home is where the heart is, a “tax home” is where a person is expected to live taking into consideration the person’s principal place of employment.

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