The International Tax CPA know that the branch profits tax is a sneaky beast. It has three prongs. One is your interest expense. Next, the amount of equity in your U.S. business, Lastly, the reason you have equity in your U.S. business. This tax is reported on Form 1120F.
If you kept equity in your U.S. business to avoid the branch profits tax, then you owe the branch profits tax. Form 1120F’s balance sheet is where you study this topic.
The branch profits tax is designed after the domestic corporate tax law known as the “accumulated earnings and profits tax”. This law is found in tax code section 531. This key factor is the accumulation of profits to avoid paying a dividend (and thus the income tax on the dividend).
International Tax CPA and the Form 1120F
My course to the California Society of CPA’s on international tax planning included the branch profits tax. Below is part of the course. If you need help with your international tax planning, then contact me at [email protected]
This course was for the international tax CPA. So, you may find the video too complicated. I suggested that you forward this blog to your CPA (if he is not an international tax CPA).
Here (this link) is more information on the branch profits tax. The tax is tricky.
If you have paid the tax, then let us see if we can get the IRS to refund branch profits tax to you. I can tell you one way to know if your CPA has messed up.
If your business does not have a double entry set of accounting books (called a general ledger), then the branch profits tax calculation may be wrong.