17 terms

Chapter 13

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Commerce Clause
Article 1 of US Constitution grants Federal Government the power to "regulate commerce with foreign nations and among the several states and with the Indian Tribes". This empowers congress and federal courts to establish ground rules for state tax laws, meaning the tax laws cannot discriminate against interstate commerce
Nexus
Degree of contact between a business and a state necessary to establish jurisdiction
UDITPA (Uniform Division of Income for Tax Purposes Act)
1957, National Conference of Uniform State Laws drafted this as a recommended method for apportioning income among multiple state jurisdictions. Most states use apportionment formula
Apportionment
Method of dividing firms taxable income among the various states with jurisdiction to tax the firms business activities. Determines the taxable income by each state
Income tax treaty
Bilateral agreement between the government of two countries defining and limiting each country's respective tax jurisdiction. Provisions pertain only to individuals and corporations that are residents of either country and override the countries general jurisdiction rules
Permanent Establishment
Taxed by the host country. Fixed location, such as an office or factory at which the firm carries on a regular commercial operations
Outbound Transaction
US does not surrender this primary jurisdiction when a US firm engages in this with residents of other nations, even if the income from the transaction is taxed by a foreign government.
Foreign tax credit
Available only for income taxes, foreign excise, value-added, sales, property and transfer taxes are not creditable
Foreign Source Income
Helps compute the specific percentage of the precredit US tax for the year. Divide this by the taxable income
Excess Foreign tax credit
Foreign tax paid but not credited, that can be carried back one year and forward 10 years
Cross-crediting
Firm earns income in both low tax and high tax foreign jurisdictions, the excess credit from the high tax income can be used to the extent of the excess limitation from the low tax income. It reduces the firms global tax rate on its foreign source income
Withholding tax
Rates vary across countries and are often specified in a country income tax treaty. Tax on dividends paid to foreign shareholders that is withheld by the corporation who is paying the dividends
Deemed paid foreign tax credit
Credit based on the income tax paid by the foreign corporation and not on any tax paid directly by the US corporation
Tax Haven
Counties with minimal or no corporate tax. Subsidiary existed only on paper, performing no function other than providing tax shelter.
Controlled Foreign Corporation (CFC)
1962, Congress ended the most abusive strategies by enacting a set of antideferral rules applying to this type of corporation. It is a foreign corporation in which US shareholders own more than 50% of the voting power or stock value. If they earn certain types of income, law treats such income as if it were immediately distributed to the shareholders of the corporation
Subpart F Income
Only narrowly defined categories of income labeled as this in the IRC can be earned by a CFC that must be repatriated to its US shareholders, that is treated as a constructive dividend. It is artificial income because it has no commercial or economic connection to the CFCs home country. Complex components, one of the more important of which is income derided from sale of goods if: (pg 391)
Transfer Prices
Demand that related entities deal with each other in the same arm's length manner as they deal with unrelated parties. Pushing numbers to benefit the unit, market tension of unrelated