International Taxation and Foreign Tax Credits

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International Taxation and Foreign Tax Credits

INSTRUCTIONS:

You are working as a tax professional and are hired by a client who is a US based taxpayer and is interested in expanding the business into foreign markets. 1. assess at least 2 types of organizations that the taxpayer could establish abroad and the various tax impacts that these types of organizations may cause. Provide support for your rationale. 2. develop a strategy for the client to repatriate earnings from the foreign markets and avoid or mitigate the US tax impact on repatriation. Provide support for your rationale. 3. evaluate foreign tax credits and propose at least 3 tax credits the client could use and the impact on the taxes. Provide examples with you rationale. 4. assess the impact that the accumulated earnings tax had on the client and how the tax could be avoided or mitigated. Provide examples with you rationale. 5. analyze the rules regarding potential US and foreign sourced losses and propose scenario to your client that would best represent the proper treatment of those losses. Provide support for your rationale

CONTENT:

International taxation and foreign tax credits Name: Institution: Date: The American tax code gives tax concessions to foreign business ventures through tax deferrals. Similarly, other incentives seek to maximize profits and increase competitiveness for such foreign ventures. For instance, there are no taxes on profits for money held abroad from profits of foreign subsidiaries, if the money does not find its way back in America. However, the taxation features on their own have different effects on investment abroad. The foreign tax credit system may allow neutrality, but may be either an incentive or disincentive depending on the circumstances. Even though, the corporation tax rate of the US is one of the highest in the industrialized world, investment abroad may prove beneficial to many businesspersons and organizations. Thus, it is necessary to look into the establishment of S corporations, and corporations that have subsidiaries in foreign countries that allow investors to take advantage of tax credits. There are stark differences between the taxation structures of many countries, but the main difference with the American taxation code is that it considers taxation on income earned in any country. The American tax system requires one to pay tax regardless of the income`s origin (Hufbauer & Assa, 2007). Thus, even for corporations, payment of taxes takes place regardless of the location, but there are rules on whether such earnings are earned or repatriated. At the same time, there are different rules whereby S corporations, partnerships and corporations pay taxes through the owners who have to file annual returns. In the case of corporations, there are payments on earnings on one side and different payments to shareholders in the form of dividends. A subsidiary is a separate entity from the parent company in the US, and the main advantage of this program is that subsidiaries of multinationals do not suffer taxation in the US. At the same t...

International Taxation and Foreign Tax Credits