Category Archives: International taxation

Articles found here are more general in nature than in Cross Border. Here you will find proposed American Tax laws, Senate and Congressional hearings, comments on US Government official statements.
Cross Border is the advance sub category of International Taxation. Both are written by Brian Dooley, CPA, MBT.

Provocative International Tax News

offshore tax planning, offshore tax strategies, controlled foreign corporation,

Tax Planning Small Business Are Taxed at 14%

Government Report Shames Businesses Paying More than 14% in Taxes.    Hard to believe that Senator Bernie Sanders  (who paid tax at 13%) released the report.  It states that a business that plans its taxes are taxed at 14%. Here’s what’s going on.   

International tax planning for the Contract Manufactuere

International tax planning for the Contract Manufacturer

Fantastic tax savings for importers of contracted manufacturer of their products.  This new IRS law gives tax savings to small businesses.  Learn more on this link and send it to your CPA.

Small businesses are now reaping significant tax savings using their own contract manufacturing company.  Importers, exporters, and e-commerce business can use the same loopholes as big business. I wrote my book to teach you these tried and true strategies in an easy two-hour read.

International tax planning

Buy at Amazon for only $9.50.

But, I did more.  I had an audiobook created.  It downloads onto your smartphone so that you can listen while you are commuting.   Get the 2017 edition of  International Taxation in America for the Entrepreneur for $9.50 at Amazon on this link.

saving taxes, how to save taxes, tax planning,

Saving taxes with an IRS approved tax plan is called a private letter ruling.

International Gift Tax Plans with this IRS internal letter on this link. Fantastic legal tax avoidance for the foreign person with family in the U.S. is explained in this letter.

  • Avoiding state income taxes this new IRS  designer  Nevada trust.  IRS tells how to use your Nevada corporation as your trustee to legally stop paying state taxes on your investment income. Here’s what’s happeningon this link.

New- Saving foreign taxes with this letter from the U.S. Department of the Treasury letter to the U.K. tax authorities on tax planning in the U.S. for UK and EU companies.

Tax planning, with the Supreme Court common tax laws

Tax planning with Supreme Court common tax laws

18th Century Supreme Court case destroys IRS tax penalty law. Using this case, the Tax Court gave the IRS a significant defeat.  Here is what happen.   The Supreme Court is the “Law of the Land.”  It rules over the IRS and Congress.   

It works both ways.  The blog on this link explains the most missed Supreme Court Doctrine use by the IRS to blow up this offshore plan.

international tax planning, international, tax, planning,

International tax planning and international tax savings with this Treasury Department report. 

The secret report on tax savings international tax plans that the IRS cannot stop was issued by the U.S. Department of the Treasury (a branch of the White House).

They reported the successful foreign tax plans of international businesses. We have obtained a copy.  It is on this link.   Here you will learn the legitimate foreign tax plans that Congress likes. 

offshore trust, foreign trust, nevada trust, estate planning trust, esbt,    Since the Middle Ages, the wealthy have capitalized on trusts to avoid paying taxes. During the Great Crusades, upon the death of a knight, his entire estate went to the king.    Nine hundred years later, things have not changed much except the ‘King” takes only half.

Trust are the most efficient tax tool. International tax planning should start with a Nevada trust to own the foreign company.  Learn trust tax planning and asset protection in this easy to read blog post.    It has the blueprint for successful trust tax planning.   IRS memo on asset protection and tax planning with an offshore trust.  Get it now on this blog post.

internet tax planning, saving taxes, cloud tax planning

Saving taxes with the cloud-based

Cloud tax planning. Learn how businesses are using the cloud to avoid taxes on this link.  E-commerce companies are avoiding state income taxes and in some cases deferring U.S. taxes.

Be an IRS tax wizard with our new custom Google search, on this link.  This custom Google app to read 400,000 pages deep inside the IRS’s website and the tax court’s website.

Tax Pirates Invade America

Wikimedia Commons, modified by Gretchen McCulloch

Wikimedia Commons, modified by Gretchen McCulloch

Avast me matey!   Tax pirates have found a new tax haven.

They exploit the IRS mistake on the Form W-9  and uses the Delaware LLC to evade taxes.  Wyoming and Nevada are also popular, as explained in this footnote1.

It started in 1996 when the IRS changed the law on limited liability companies (LLC).   The LLC is an invisible corporation. It does not file a tax return!
Continue reading

International Tax Strategy for the Foreign Offshore Corporation Distribution of Appreciated Property to a U.S. Shareholder

Sometimes a foreign or domestic corporation will distribute property, rather than cash, to its shareholders.

The distribution of appreciated property will cause the corporation to realize and recognize gain equal to the difference between the adjusted basis of the property (also known as its tax cost) and its fair market value.   It can also cause the U.S. shareholder to recognize taxable income.

Here is what happens: 

The corporation is treated as if it sold the property at the time of the distribution[1].

This gain increases earnings and profits of both foreign corporations and domestic corporations[2].   When a corporation makes a distribution, the shareholder has dividend income if the corporation has earnings and profits. When a foreign corporation is involved, it goes from bad to worse.   Not only is the Federal tax rate up to 44%, but the punitive passive foreign investment company law may also apply. The longer the foreign corporation was owned the greater the amount due.

For example, Bob owns a British Virgin Islands corporation that owns other foreign corporations.  This is also known as a  holding company.  The cost of all the shares of the other foreign corporations was $10,000.  Now, those shares are worth $100,000.  

The BVI holding company distributes all of the shares of the other foreign corporation to Bob.   Section 311 of the U.S. tax code, treats the distribution as a sale to Bob.  The BVI holding company has $90,000 of tax accounting gain.  Under the U.S. tax law, this gain is taxable to Bob as ordinary income.

What if Bob had the BVI holding company make an election to be treated like a U.S. LLC (this is known as the “check the box” election)?

The result is the same. U.S. tax law treats that election as a liquidation of the BVI holding company followed by a distribution of its assets to the shareholder.

By the way, Congress purposely wrote this law to be unfair by not including the corresponding provision that permits a corporation to recognize the loss on the distribution of property.

This is important: The gain is based on the value of the asset distributed and not the value of the property received by the shareholder. 

The court case of Pope & Talbot v. Commissioner demonstrates this tax trap.[3]  The corporation distributed appreciated property to a limited partnership, which in turn distributed limited partnership interests to the company’s shareholders.

The corporation argued that, in calculating the gain recognized, the IRS should have determined the fair market value of the distributed property by aggregating the market value of the limited partnership interests the shareholders received instead of calculating the fair market value of the distributed property.

The Ninth Circuit affirmed the Tax Court and held that the fair market value is not determined by the property interest received by each shareholder.    Accordingly, the minority ownership discount can’t be used to reduce the taxable income.

Code Section 311’s disallowance of the recognition of a loss in non-liquidating distributions is a dangerous tax trap.   For example, an offshore company has two assets.  Both are worth $1,000.  One asset costs $100 and the other $1,900. The corporate distributes both assets.   The loss of $900 can’t offset the gain of $900. 

Thus, the corporation and/or its U.S. shareholder have $900 taxable income.

Footnotes

[1] Code Section 311(b) for non-liquidating distributions and Code Section 336 for liquidating distributions.

[2] Code Section 312(b)(1).

[3] 162 F.3d 1236 (9th Cir. 1999)

Airbus & Virgin’s SpaceShips Abandons EU VAT for Tax Haven USA?

EU value added tax planning starts in the US.

EU value added tax planning starts in the US.

Airbus announced that it is going to America.  America is the best  (VAT) value added tax haven in the World.  Airbus is joining BMW and Mercedes in California. 

The value added tax (VAT) is an abusive tax.  It destroys a business’s working capital preventing growth, innovation, and jobs.  Virgin Air’s SpaceShip is ready to launch from New Mexico.

The UK and EU VAT is helping the USA boom.  Why is Virgin Air building its Spaceships the U.S?     Well, the VAT adds to the cost of supplies and parts.  Plus, the VAT  is paid with after income tax working capital (money).  Paying with after-tax dollars increases the VAT to 30%.   If you are spending a $1Billion,  you save $300 million over the cost in the U.K. or the EU.  

  • Many people wonder why the VAT destroys growth.   If you need to purchase $1,000 inventory in the US, you will need to make $1,400 and pay income tax of $400.    In the UK and the EU,   you will need $1,700 to buy the $1,000 inventory.   If the VAT is $200,   the after income tax cost is $1,200 (compared to $1,000 in the U.S).
  • The EU business will need to earn $1,700 paying income tax of $500 to have the after income tax money of $1,200. If you are Airbus or Virgin Air and you are spending billions of dollars paying the VAT.
  • The Financial Times of London reported that the VAT had destroyed what remains of Greek Small Business.  The EU announce $2 trillion in bailouts to save  Greece and Spain is looking for the same.
  • England is not safe from VAT tax haven USA.   Virgin Air’s  SpaceShip I and II were built in California (more on this link).  Yes, anti-business state California is better than the U.K.
  • Avoiding value added tax in the United States.

    Virgin Air Spaceship is in value added tax haven U.S.

    1. Virgin Atlantic’s Space Ship II has joined Space Ship I in California. The VAT destroys business like no other tax; it seizes working capital that is required for growth.  What costs $1.30 billion in the U.K. costs $1 billion in California.
    2. If your business needs inventory, you can simply buy more of it in the United States.  More inventories mean more profits.  More profits allow for more growth. 

    Want to take your tax planning to the next level, then contact me, Brian Dooley, CPA, MBT [email protected]

How to Prepare Form 1120F for a Foreign Corporation’s non-U.S. Business Income and Investment Income & Form 5471

Table of Contents to Foreign Corporation Tax Planning and Preparation for Form 1120F.  For Form 5471, please click on this link.

International tax planning has a thin line between non-business income and business income.

A foreign corporation pays a tax of 30 percent of the amount it receives from sources within the United States as investment income and sometimes compensation:1

The 30 percent tax does not apply to interest income on a “portfolio debt”  that a foreign corporation receives from U.S. sources.

Avoiding U.S. tax on Businesses Income with no Permanent Establishment. 

One part of the Form 1120-F to report and pay tax on U.S. source investment income and U.S. source income from the sale of property (including inventory).  When the foreign corporation does not file the U.S. Form 1120F, the IRS can at any time assess taxes.  The corporation will also lose its right to deduct expenses.

If you are not sure if Form 1120F is required, you can use the safe method of a protective filing.   If you need help, then please call me Brian Dooley, CPA, MBT at 949-939-3414.

International tax planning has a thin line between non-business income and business income.

This thin line decides which of two very different tax laws apply.  This blog is on the income that is not connected to a  U.S. office or “place of business”.

Sometimes this income is investment income and sometimes business income that is not connected to a U.S. business’s office or place of business.

A foreign corporation pays a tax of 30 percent of the amount it receives from sources within the United States as:

(1) interest (other than bank interest),  dividends, rents, salaries, wages, premiums, annuities, compensations, remunerations, and royalties,

(2) gains on the disposal of timber, coal or domestic iron ore with a retained economic interest;

(3) gains from the sale or exchange of patents, copyrights, secret processes and formulas, goodwill, trademarks, trade brands, franchises, and other like property, or of any interest in such property but only to the extent the gains are from payments that are contingent on the productivity, use, or disposition of the property or interest sold or exchanged.   The taxable portion is after recovery of your cost; and

(4) and other “fixed or determinable” annual or periodical gains, profits, and income (this is a “catch all” part of the tax law that rarely applies).

The gross income (income before expenses) is taxed a 30 percent.  Sometimes, a tax treaty may reduce this tax rate.

The 30 percent tax does not apply to interest income on a “portfolio debt”  that a foreign corporation receives from U.S. sources.

The purpose of the portfolio debt tax law is to allow the foreign investor to make loans to U.S. persons and avoid U.S. taxes.  Yes, the intent of the law is to avoid taxes.  The following is a summary of the type of debts.

(1) An unregistered obligation that is payable only outside the United States if the obligation is designed to be sold only to a non-U.S. person; and

(2) A registered obligation for which a statement is if the beneficial owner of the obligation is not a U.S. person.

The following types of interest cannot be portfolio debt interest:

(1) Contingent interest, such as interest payments that depend upon the income, profits, or assets of the debtor;

(2) Interest received by a bank on an extension of credit made under a loan agreement entered into in the ordinary course of its trade or business;

(3) Interest received by a 10-percent shareholder of the corporation paying the interest; and

(4) Interest received by a controlled foreign corporation from a related person.[1]

The other advantage is U.S. estate taxes.  Upon the death of a non-resident alien, portfolio debt is not included in his or her U.S. estate tax return.

Avoiding U.S. tax on Businesses Income with no Permanent Establishment.

Tax treaty corporations have a unique advantage.   They can earn U.S. business income and not pay U.S. taxes.

Here are some examples of international tax strategies.

Personal service income to U.S. customers

A British law firm has American customers.  They perform the services outside of the U.S.  However; they have an office in Los Angeles for administration and marketing.  Payments made by their American customers are deposited into a U.S. bank located in Los Angeles.

Their income is not subject to U.S. taxes.  You will note that the law firm has a permanent establishment in the U.S.  They did not try to avoid having a permanent establishment or even a place of business.

The tax planning is the international tax law on service income.  This income is sourced where the individual (or computer as in the example below) is located when the services are provided.

Web services to U.S. customers.

A Swiss business has an app that is used by both American businesses and European businesses.  The customer pays for the app pay watching commercials or by monthly subscription services.  The Swiss company maintains and office in Orange County, California for their American owners and directors.  The Swiss company does it banking in Newport Beach, California, and Geneva.

The Swiss businesses income is not subject to U.S. taxes.  Learn why on this link.

Sale of merchandise to Americans   

Sam, a Canadian citizen, has an investor visa and lives in Malibu, and his office is in the Santa Monica.   He owns a U.K. company that sales paddle boards via a U.K. website.  He is a director of the U.K. company.  He is also the sole shareholder.

The paddles are shipped directly from Canada using Federal Express ground shipping.  Title to the paddle board passes to the customer via the website in Canada. The income of the U.K. company is subject to U.S. taxes.   Sam must file form 5471.

FOOTNOTE

[1] Code Section 881(c).