U.S. international tax planning and policy: including cross-border mergers and acquisitions
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2007
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| 650 | 4 | |a Steuer | |
| 650 | 4 | |a Aliens |x Taxation |x Law and legislation |z United States | |
| 650 | 4 | |a Conflict of laws |x Consolidation and merger of corporations |x Taxation |z United States | |
| 650 | 4 | |a Corporations, Foreign |x Taxation |x Law and legislation |z United States | |
| 650 | 4 | |a Income tax |z United States |x Foreign income | |
| 650 | 4 | |a Investments, Foreign |x Taxation |x Law and legislation |z United States | |
| 650 | 4 | |a Tax planning |z United States | |
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Datensatz im Suchindex
| _version_ | 1804135337968009216 |
|---|---|
| adam_text | Contents
Table of Cases
xxxiii
Table of Principal Revenue Rulings and Revenue Procedures
xxxv
Preface
xxxvii
Acknowledgments
xxxix
Chapter
1
Scope and Introduction
3
§1.1
Scope and Introduction
3
A. Scope of Book
3
B. Scope of Chapter
5
§ 1.2
Introduction to Present Law Taxation of Outbound and Inbound
Transactions
6
Staff of the Joint Committee on Taxation Overview of Present-Law
Rules and Economic Issues in International Taxation
6
§ 1.3
Domiciliary and Source Jurisdiction
12
A. Introduction and Potential for Double Taxation
12
B. Constitutionality of U.S. Taxation of Citizens on Worldwide Income
13
Cookv.
Tait
13
Questions
14
§ 1.4
Exclusion for Certain Foreign Source Income of U.S. Citizens and
Resident Aliens
15
Note on
2006
TIPRA Amendments to Section
911 16
§ 1.5
Outline of Basic Statutory Provisions Governing the Taxation of
Nonresident Aliens and Foreign Corporations
16
A. General Rules
16
B. Exceptions
17
§ 1.6
Introduction to the Structure and Purpose of the Sourcing Rules
18
A. In General
. 18
B. Sources Wholly within or Wholly without the U.S.
19
С
Sources Partly within and Partly without the U.S.
20
§ 1.7
General Description of Tax Treatment of the Domestic and Foreign
Operations of the Three Basic Forms of Business Entities
21
A. Introduction
21
B. Determining Whether a Corporation Is Foreign or Domestic
21
С
The
С
Corporation
21
1.
The Domestic
С
Corporation
21
2.
The Foreign
С
Corporation
23
D. The Partnership and Limited Liability Company
23
1.
The Domestic Partnership
23
2.
The Foreign Partnership
24
viii
CONTENTS
E.
Classification
of an Entity as a Partnership, an Association Taxable
as a Corporation or as a Disregarded Entity
25
1.
The Entity Classification Regulations: The Check the Box
Regulations
25
Preamble to the Final Entity Classification Regulations
25
Note and Questions
27
2.
Regulations Dealing with the Per
Se
Classification of the European
Public Limited Liability Company
27
Preamble to Final and Temporary Regulations on per
se
Classification
of the European Public Limited Liability Company
27
3.
Illustration: Impact of Disregarded Entity Classification on
Determination of Whether a Lower Tier Entity Is a Partnership
28
Revenue Ruling
2004-77 28
4.
Agreements with Foreign Owners on Classification of Foreign
Joint Venture Entity
29
F. The
S
Corporation
30
§ 1.8
Introduction to International Tax Arbitrage and the Problem of Double
Nontaxation
31
§ 1.9
Introduction to Economic and Policy Issues in U.S. Taxation of
International Transactions
32
A. In General
32
Staff of the Joint Committee, Taxation Overview of Present-law Rules
and Regulations and Economic Issues in International Taxation
32
B.
2007
International No Ruling Areas
53
Revenue Procedure
2007-7
International Areas for which Rulings and Determination Letter
Will Not Be Issued
53
C. Treasury and
1RS
Priority Guidance Plan for International Issues
—
2006-2007 57
Department of the Treasury
2006-2007
Priority Guidance Plan
* * * 57
§ 1.10
Introduction to the South African Income Tax System
60
§ 1.11
References
63
Chapter
2
Introduction to Tax Treaties
65
§2.1
Scope
65
§ 2.2
Introduction
65
A. In General
65
Note on the
2006
Treasury Model Treaty
67
B. Introduction to
1996
Model Income Tax Treaty (See also November
2006
Model Tax Treaty)
67
United States Model Income Tax Convention of September
20, 1996
Technical Explanation and Preamble
67
C. Treasury Explanation of U.S. Treaty Policy
68
Testimony by Patricia Brown, Deputy International Tax Counsel, U.S.
Treasury, on Pending Income Tax Agreements, before the Senate
Committee on Foreign Relations
68
§ 2.3
Elaboration on the Purpose of Tax Treaties
72
CONTENTS ix
American
Law
Institute,
Federal Income Tax Project,
International Aspects of United States Income Taxation II
72
§ 2.4
Model Income Tax Treaty
—
Introductory Provisions
76
A. In General
76
B. Residence
77
C. Other Definitions
77
D. Scope of Treaty
77
E. Savings Clause
77
1.
Introduction
77
2.
Technical Explanation of Savings Clause of Model Treaty
78
1996
U.S. Model Income Tax Treaty, Technical Explanation of Article
1 78
F. Taxes Covered
79
§2.5
Special Substantive Provisions of the Model Treaty
79
§2.6
Administrative and Miscellaneous Provisions of the Model Treaty and
Relationship between Treaties and Statutes
79
A. The Model s Administrative and Miscellaneous Provisions
79
B. Relationship between Statutes and Treaties
80
§2.7
Disclosure of Treaty Based Positions
80
§ 2.8
Introduction to Treaty Abuses
81
Comments on Tax Treaty Abuses
81
§ 2.9
Introductory Problems on Treaties
83
§2.10
B. Treasury s
1996
Model Treaty (See also November
2006
Model Tax
Treaty)
83
U.S. Model Income Tax Convention of September
20, 1996 83
Chapter
3
U.S. Taxation of the U.S. Source Non-Trade or Business Income
of Nonresident Aliens and Foreign Corporations
101
§3.1
Scope
101
§3.2
Determinining if a Foreign Corporation or Nonresident Alien Is
Engaged in the Conduct of a U.S. Trade or Business
102
A. Introduction
102
B. Isolated Purchases and Sales
102
Continental Trading, Inc. v. Commissioner
102
C. Does Net Leasing Constitute a Trade or Business
104
Revenue Ruling
73-522 104
D. Effect of Agency Agreement
106
Revenue Ruling
70-424 106
§3.3 30%
Gross-basis Tax on Fixed and Determinable Interest, Dividend,
and Royalty Income
106
A. General Rules
106
B. Interest
107
1.
In General
107
2.
Original Issue Discount Obligations
107
3.
Interest on Certain Deposits
108
4.
Exemption for Portfolio Interest
108
a. Legislative Background
108
General Explanation of the Revenue Provisions of the Deficit
Reduction Act of
1984 108
b. Further Elaboration
110
CONTENTS
і.
In General 110
ii.
Final
Regulations Dealing with the Issuance of Bearer
Bonds under §162(f)(2)(B) 111
Treasury Decision
8300 111
с
Introduction to the Impact of the Securities Act of
1933
on the
Issuance of Eurobonds
113
i. In General
113
ii. Regulation
S
under the Securities Act of
1933 114
Regulation S-Rules Governing Offers and Sales Made outside the
United States without Registration under the Securities Act of
1933 114
С
Dividends
117
D. Royalties and Other Items of Fixed or Determinable Income
117
§3.4
Treaty Provisions Governing Fixed or Determinable Interest,
Dividends, and Royalty Income
118
A. Taxation of Dividends
118
B. Taxation of Interest
118
C. Taxation of Royalties
118
D. Technical Explanation of Dividend, Interest and Royalty Provisions
of Model Treaty
119
1996
U.S. Model Income Tax Treaty, Technical Explanation
119
E. Anti-Treaty Shopping Provisions
121
§3.5
Implementation of
30%
Gross-Basis Tax by Withholding
121
A. Introduction
121
B. Section
1441 121
C. Section
1442 122
D. Withholding Procedures
122
E. Illustration of Impact of Sections
881
and
1442 122
Central
De Gas De
Chihuahua,
S.A.
v. Commissioner
122
Question
124
F. Final Regulations Dealing with Withholding under Sections
1441
and
1442 124
1.
The Preamble to the Final Regulations
124
Preamble to TD
8734
(Oct.
4, 1997) 124
2.
Application Procedure to Become a Qualified Intermediary
127
Revenue Procedure
2000-12 127
§ 3.6
Treatment of Non-Trade or Business Capital Gain Income
128
A. Statutory Provisions
128
B. Determining Whether the Trading in U.S. Stocks, Securities and
Commodities Constitutes a United States Trade or Business
129
1.
In General
129
2.
Revenue Reconciliation Act of
1997,
Senate Finance Committee
Report No.
105-33
(June
19, 1997)
(Enacted by Taxpayer Relief
Act of
1997) 130
Simplify Stock and Securities Trading Safe Harbor
130
C. Treaty Provisions
131
1.
Introduction
131
2.
Technical Explanation of Gains Provision of Model Treaty
131
1996
U.S. Model Treaty, Technical Explanation of Gains
131
CONTENTS xi
§ 3.7
Summary
Problems
on
Taxation
of U.S. Source Interest, Dividend,
Royalty, and Capital Gain Passive Income
132
§3.8
Taxation of Rents and Gain from Non-Trade or Business U.S. Real
Property Interests
13 2
A. Taxation of Real Property Rental Income
132
B. Taxation of Gain on the Disposition of U.S. Real Property
133
1.
Introduction
133
2.
U.S. Real Property Interest Defined
133
3.
General Rule and Exceptions
134
C. Imposition of Withholding Tax
135
1.
Introduction
135
2.
Special Rules for Certain Entities
135
3.
Exemptions from Withholding
135
4.
Other Provisions
136
D. Reporting Requirements
136
E. Taxation of Rents and Gains from Real Property under the Model
Treaty
136
1.
Introduction
136
2.
Technical Explanation of Model Treaty s Treatment of Income
from Real Property
137
1996
U.S. Model Income Tax Treaty, Technical Explanation
of the Real Property Provisions, Article
6
and Article
13 137
F. Summary Problems on Rents and Gain from U.S. Real Property
Interest
138
§ 3.9
Denial of Treaty Benefits for Certain Payments to Hybrid Entities:
Impact of Taxpayer Relief Act of
1997 139
Statement of Managers on Taxpayer Relief Act of
1997
(HR
2014)
Conference Report
139
§3.10
South African Taxation of South African Source Non-Trade or
Business Income of U.S. Persons
141
Chapter
4
U.S. Taxation of the Personal Services Income of Nonresident
Aliens
145
§4.1
Scope
145
§4.2
Determining Whether an Alien Is a Resident or a Nonresident
145
§4.3
Performance of Services in the U.S. by a Nonresident Alien: Trade or
Business and Sourcing Rules
147
A. Introduction
147
B. Withholding on U.S. Personal Services Income
147
§4.4
Taxation under the Model Treaty of Income from Personal Services
148
A. Introduction
148
B. Technical Explanation, Articles of Model Treaty Dealing with
Personal Services and Directors Fees
148
1996
U.S. Model Income Tax Treaty, Technical Explanation of
Independent Personal Services, and Directors Fees
148
§ 4.5
Summary Problems on the Taxation of Income from Personal Services
151
§4.6
South African Taxation of Personal Service Income of Nonresident
U.S. Persons
152
xii CONTENTS
Chapter
5
Organizing and Operating a United States Business: Foreign
Controlled U.S. Corporations, Branches, and Partnerships
155
§5.1
Scope
155
§5.2
Direct Investment in the U.S. through the Formation of a
Domestic Corporation
156
A. Organizing a Domestic
С
Corporation
156
1.
Introduction
156
2.
Limitation on Transfer of Built-in Losses by the American Jobs
Creation Act of
2004 158
Conference Committee Report to the American Jobs Creation Act of
2004 158
B. Capitalizing a Domestic
С
Corporation
160
C. Repatriation of Earnings through Interest, Dividends and Royalties
161
1.
Basic Statutory Rules
161
2.
Impact of the Model Treaty
161
3.
The Zero Rate on Dividends in the U.S.-U.K. Treaty
162
4.
U.S. Treaty Policy on a Zero Rate for Inter-Company Dividends
163
Testimony by Patricia Brown, Deputy International Tax Counsel, U.S.
Treasury, on Pending Income Tax Agreements, before the Senate
Committee on Foreign Relations
163
5.
Introductory Problems on Repatriations
163
D. Limitation on Earnings Stripping through Interest Payments to
Related Tax-Exempt Persons
164
1.
Legislative Background
164
House Report to the Revenue Reconciliation Act of
1989 164
2.
Further Elaboration on Earnings Stripping
166
a. In General
166
b. Treatment of Guarantees
167
3.
Summary Problems on Earnings Stripping
168
4.
Earnings Stripping by a Nonresident Alien
168
5.
TIPRA
2006
Amendment Regarding Earnings Stripping and
Partnerships
169
E. Limitations on Treaty Shopping
169
1.
Introduction and Treaty Sandwiches
169
2.
Illustration of the Conduit Principle
170
Revenue Ruling
84-153 170
3.
Further Elaboration on the Conduit Principle
172
4.
Impact of the Model Treaty
173
a. Introduction
173
b. Technical Explanation of Limitation of Benefits Article of
Model Treaty
173
1996
U.S. Model Income Tax Treaty Technical Explanation of
Limitation on Benefits, Article
22 173
5.
Summary Problems on Treaty Shopping
176
6.
Impact of Section
7701(1) 176
a. Introduction
176
b. Legislative Background
176
House Report to the Revenue Reconciliation Act of
1993 176
с
The Regulations under Section
7701(1) 178
CONTENTS
xiii
Preamble to Proposed Regulations
178
d. The Final Regulations under Section
7701 ( 1 ) 179
Preamble to Treasury Decision
8611 179
F. Impact of
§482
on Structuring of Relationship between Controlling
Foreign Shareholder and Domestic Corporation
180
1.
Introduction
180
2.
Policy Perspective on Inbound
§482
Transactions
180
Joint Committee Explanation of the Foreign Income Tax
Rationalization and Simplification Bill of
1992 180
G. Information Reporting for Foreign Owned Corporations
183
§ 5.3
Direct Investment in the U.S. through Formation of a Branch
184
A. Introduction to the Concept of a U.S. Branch
184
B. Effectively Connected Income
184
1.
Introduction
184
2.
U.S. Source Fixed or Determinable Income and Capita) Gains
184
3.
Other Income from Sources within the U.S.
] 85
4.
Foreign Source Effectively Connected Income
185
a. In General
185
b. Illustration
186
Revenue Ruling
75-253 186
5.
Certain Prior Years Transactions
187
6.
Policy Perspective: Clinton Administration Proposal to Change
the Taxation of Effectively Connected Income
188
General Explanations of the Administration s Fiscal Year
2001
Revenue Proposals Department of Treasury
188
C. Source of Income from Sale of Inventory and Other Personal
Property by U.S. Branch
190
1.
Introduction
190
2.
Legislative Background
190
General Explanation of the Tax Reform Act of
1986 190
3.
Planning Point Regarding Sales of Inventory through Foreign
Owned U.S. Branches
191
D. Computation of Taxable Income
193
1.
Introduction
193
2.
Deductions Generally
193
3.
Statutory Scheme
193
4.
Allocation and Apportionment of Interest Expense of U.S. Branches
194
a. Introduction
194
b. Proposed Regulations under
§ 1.882-5 194
Preamble to Prop. Reg.
§ 1.882-5
(INTL.
309-88) 194
с
Final Regulations under
§ 1.882-5 195
Preamble to Final Regulations, Treasury Decision
8658 195
5.
Return Requirements
1
96
E.
Taxation of Business Profits under the Model Treaty
—
The
Permanent Establishment Concept
197
1.
Introduction
197
2.
The Permanent Establishment Concept
197
a. Introduction
197
b. Illustration of the Permanent Establishment Concept
197
xiv CONTENTS
Revenue
Ruling
76-322 197
c.
Technical
Explanation of Permanent Establishment
Definition of Model Treaty
199
1996
U.S. Model Income Tax Treaty, Technical Explanation of
Definition of Permanent Establishment
199
3.
Taxation of Business Profits
200
a. Introduction
200
b. Technical Explanation of Business Profits Article of Model Treaty
201
1996
U.S. Model Income Tax Treaty, Technical Explanation of the
Business Profits Article, Article
7 201
4.
Illustration of the Impact of the U.S.-U.K. Treaty on the
Computation of Profits of a U.S. Branch of a U.K Bank
—
NatWest
202
National Westminster Bank, PLC v. United States
202
F. Summary Problems on Computation of Effectively Connected
Income and U.S. Source Taxable Income
207
G. Repatriation of Branch Profits: The Branch Profits Tax
208
1.
Legislative Background on the Branch Profits Tax
208
General Explanation of the Tax Reform Act of
1986 208
2.
Branch Profits Tax on Imputed Dividends
211
a. Introduction
211
b. General Rule
211
с
Exclusions and Adjustments
211
d. Coordination of Branch Profits Tax with Income Tax Treaties
213
i. Introduction
213
ii. Treatment of the Branch Profits Tax under the Model Treaty
214
Technical Explanation of Paragraphs
8
and
9
of Article
10,
Dividends,
of Model Treaty
· 214
3.
Branch Level Interest Tax
215
4.
Coordination with Withholding Tax on Dividends Paid by
Certain Foreign Corporations
215
5.
Introductory Problems on the Branch Profits Tax
216
H. Reporting Related to Foreign Corporations Doing Business in the U.S.
217
§ 5.4
Application of Net-Basis Tax and Withholding Rules to Partnerships
217
§ 5.5
Application of Net-Basis Taxation to E-commerce Conducted in the
U.S. by Foreign Persons
218
A. Introduction
218
B. An Approach to Inbound E-commerce Sales
218
Los Angeles County Bar Association Tax Section, Selected Issues in
Cross-Border Electronic Commerce Transactions
218
C. E-commerce Planning Opportunity: Sales into the U.S. by Tax-Haven
Controlled Foreign Corporation
224
§ 5.6
South African Taxation of U.S. Controlled South African Companies
and Branches
224
Chapter
6
Organization and Operation of Foreign Branches by U.S. Persons:
Impact of Foreign Tax Credit, Sourcing Rules, and Foreign
Currency Rules
227
§6.1
Scope
227
§ 6.2
Introduction
228
CONTENTS
xv
§6.3
Foreign Tax Credit: General Principles
228
A. Introduction
228
1.
Legislative History
228
General Explanation of the Tax Reform Act of
1986 228
2.
Further Elaboration
230
B. Meaning of Term Foreign Income Tax
232
1.
In General
232
2.
The Regulations
233
3.
In Lieu of Foreign Income Taxes
234
§ 6.4
Direct Foreign Tax Credit
234
A. Introduction
234
B. Separating the Foreign Tax from the Foreign Income through Check-
the-Box
—
Guardian Industries
235
Guardian Industries Corp. v. United States
235
Note
238
C.
2006
Proposed Regulations on Foreign Tax Credits: The Technical
Taxpayer Rule and Hybrid and Reverse Hybrid Entitites
238
Proposed Regulations, REG-124152-06
238
§6.5
Limitation on Foreign Tax Credit
241
A. General Principles
241
B. Separate Application of Section
904
to Various Baskets of Income
—
Prior to and after the American Jobs Creation Act of
2004 242
1.
Introduction
242
2.
Legislative Background from the
1986
Act
243
General Explanation of the Tax Reform Act of
1986 243
3.
Amendments to Section 904(d) by the American Jobs Creation
Act of
2004 244
Foreign Tax Credit Baskets and Base Differences House Committee
Report to the Jobs Creation Act of
2004 244
4.
Passive Income Basket after December
31, 2006 247
a. Introduction
247
b. Exclusions from Passive Income Basket, Export Financing
Interest and Certain High Taxed Income
247
C. Policy Perspective
248
Treasury Department Study, International Tax Reform: An Interim
Report
248
D. Introductory Problems on Direct Foreign Tax Credit from Operation
of a Foreign Branch
251
§ 6.6
Recapture of Overall Foreign Losses of a Foreign Branch for Foreign
Tax Credit Purposes
252
A. Introduction
252
B. Special Rule for Certain Dispositions
253
C. Recapture of Overall Foreign Loss on Disposition of Stock in
Controlled Foreign Corporation, as Amended by the American Jobs
Creation Act of
2004 253
Recapture of Overall Foreign Losses on Sale of Controlled Foreign
Corporation Stock
253
§6.7
Recapture of Overall Domestic Loss under Section 904(g), as
Amended by the American Jobs Creation Act of
2004 255
CONTENTS
Recharacterize Overall
Domestic
Loss
255
§ 6.8
Allocation of U.S. Losses for Foreign Tax Credit Purposes
257
A. Legislative Background
257
General Explanation of Tax Reform Act of
1986 257
B. Policy Perspective
258
Treasury Department Study, International Tax Reform: An Interim
Report
26-28 258
§ 6.9
Allocation of Interest and Other Expenses for Foreign Tax Credit
Purposes
259
A. Legislative Background: The
1986
Act
259
General Explanation of the Tax Reform Act of
1986 259
B. Election to Allocate Interest on a Worldwide Basis under Section
864(f
)
as Amended by the American Jobs Creation Act of
2004 262
Interest Expense Allcoation Rules
262
C. Policy Implications
265
Treasury Department Study, International Tax Reform: An Interim
Report
265
§6.10
Allocation of Research and Development Expenses for Foreign Tax
Credit Purposes
267
Treasury Department Study, International Tax Reform: An Interim
Report
267
§6.11
Treatment of Subsidies for Foreign Tax Credit Purposes
269
General Explanation of Tax Reform Act of
1986 269
§6.12
Impact of Sourcing Rules on Computation of Foreign Tax Credit
269
A. Introduction
269
B. Source of Income from Purchase and Sale of Inventory Property by
Foreign Branch of U.S. Person: The Title Passage Rule
270
1.
Introduction
270
2.
Illustration
271
Liggett Group, Inc. v. Commissioner
271
3.
Proposed Treatment of Income from Certain Sales of Inventory as
U.S. Source
(
See
§ 865 ) 273
Revenue Reconciliation Act of
1997 273
C. Source of Income from Production and Sale of Inventory by Foreign
Branch of U.S. Person
274
1.
Introduction
274
2.
Proposed Regulations on Source of Income from Sales of
Inventory Produced in One Jurisdiction and Sold in Another
275
Preamble to Proposed Regualtions INTL-0003-95
275
3.
Final and Temporary Regulations on Source of Income from Sales
on Inventory Produced in One Jurisdiction and Sold in Another
279
Preamble to Treasury Decision
8687 279
4.
Policy Implications
281
U.S. Treasury Department Study, International Tax Reform: An
Interim Report
281
D. Source of Income from Sale of Personal Property (Other than
Inventory) by Foreign Branch of U.S. Person
282
1.
Legislative Background
282
General Explanation of the Tax Reform Act of
1986 282
CONTENTS xvii
2.
Further Elaboration
284
a. General Rule
284
b. Exception for Depreciable Property
284
с
Intangible Property
285
d. Stock in Foreign Affiliates
286
e. Exception for Dispositions through Foreign Office
286
f. Regulations
286
g. Study of Title Passage Rule
286
3.
Summary Problems on Source of Income from Sale of Property
by Foreign Branch of U.S. Person
287
E. Sourcing Rules for Export Financing by a U.S. Bank
287
Bank of America v. United States
287
§ 6.13
Foreign Currency Gains and Losses of Foreign Branches of U.S.
Persons and of Direct Foreign Transactions of U.S. Persons
292
A. Introduction
292
B. Legislative Background
292
General Explanation of the Tax Reform Act of
1986 292
C. General Principles
—
Foreign Currency Transactions
294
D. Actively Traded Currency Contracts
295
E. Determination of Functional Currency
295
1.
Legislative Background
295
General Explanation of the Tax Reform Act of
1986 295
2.
Further Elaboration
295
F. Translation of Earnings of Foreign Branch
296
1.
Legislative Background
296
General Explanation of the Tax Reform Act of
1986 296
2.
Further Elaboration
297
§6.14
Denial of Foreign Tax Credits and Other Benefits for U.S. Taxpayers
Who Participate in or Cooperate with an International Boycott
298
General Explanation of the Tax Reform Act of
1976 298
§6.15
Denial of Dual Consolidated Losses of a Domestic Corporation That
is Treated as a Resident of a Foreign Country
299
General Explanation of the Tax Reform Act of
1976 299
§6.16
Policy Issue: Should the U.S. Adopt a Tax Sparing Policy for
Developing Countries
302
Thompson, The Case for Tax Sparing along with Expanding and
Limiting the
Subpart F
Regime
302
§6.17
South African Taxation of a U.S. Branch of a South African
Corporation
303
Chapter
7
Organization of Foreign Corporations and Foreign Partnerships
305
§7.1
Scope
305
§ 7.2
Introduction to the Purpose and Effect of Section
367 306
§ 7.3
Legislative Background on Section
367 306
General Explanation of the Tax Reform Act of
1984 306
§ 7.4
Transfer of Property from U.S. to Foreign Corporations in Section
351
Outbound Transaction: General Rules
310
§ 7.5
Outbound Transfers of Property for Use in Trade or Business
312
A. Legislative Background
312
xviii CONTENTS
General
Explanation of Tax Reform Act of
1984 312
B. Further Elaboration
312
§ 7.6
Outbound Transfers of Intangibles in a Section
351
Transaction
314
A. Legislative Background
314
General Explanation of the Tax Reform Act of
1986 314
B. Amendment to Section 367(d) by the American Jobs Creation Act
of
2004 318
Foreign Tax Credit Treatment of Deemed Payments under Section
367(d)oftheCode
318
С
Further Elaboration
319
§ 7.7
Outbound Transfer of Foreign Branch with Previously Deducted Losses
321
A. Legislative Background
321
General Explanation of the Tax Reform Act of
1984 321
B. Further Elaboration
322
§ 7.8
Outbound Transfers of Stock or Securities
323
A. Legislative Background
323
General Explanation of Tax Reform Act of
1984 323
B. Further Elaboration
324
§ 7.9
Reporting Requirements for Foreign Corporations Generally
324
§ 7.10
Summary Problems on Outbound Transfers to Foreign Corporations
325
§7.11
Simplification of Formation and Operating of International Joint
Ventures: Impact of Taxpayer Relief Act of
1997 325
A. Senate Report
325
Revenue Reconciliation Act of
1997,
Senate Finance Committee
Report No.
105-33 325
B. Conference Report
327
Statement of Managers on Taxpayer Relief Act of
1997
(HR
2014)
Conference Report
327
С
Section
721
(a) and (c)
328
§7.12
South African Taxation on Formation and Operation of a U.S.
Subsidiary Wholly-Owned by a South African Parent Corporation
328
Chapter
8
Treatment of Actual and Imputed Dividends to U.S. Corporate
Shareholders of Foreign Corporations: The Indirect Foreign Tax
Credit, Look-Through Rules, Resourcing Rules, and Foreign
Currency Rules
331
§8.1
Scope
331
§ 8.2
Introduction
332
§ 8.3
The Indirect Foreign Tax Credit
332
A. Legislative Background
332
General Explanation of the Tax Reform Act of
1986 332
B. Simplification of General Provisions Affecting the Indirect Credit:
Impact of Taxpayer Relief Act of
1997 335
Senate Finance Committee Report No.
105-33 335
C. Amendment to Section
902
by the American Jobs Creation Act of
2004 336
Attribution of Stock Ownership through Partnerships in Determining
Section
902
and
960
Credits House Committee Report
336
D. Further Elaboration
336
CONTENTS xix
E. Use
of Check-the-Box Rules Where Section
902
Is Not Available
338
F. Policy Perspective
338
Treasury Department Study, International Tax Reform: An Interim
Report
338
§8.4
Separate Basket Treatment under the Foreign Tax Credit for Dividends
from Foreign Corporations
339
A. Look-Through Rules for Dividends from Noncontrolled Section
902
Corporations
339
1.
Legislative History
339
Apply Look-Through Rules for Dividends from Noncontrolled Section
902
Corporations
339
2.
Further Elaboration
340
B. The Look-through Rules Relating to Controlled Foreign Corporations
340
§ 8.5
Summary Problems on Indirect Credit and Baskets
341
§8.6
Foreign Tax Credit Resourcing Rules for Payments From U.S. Owned
Foreign Corporations
342
§8.7
Foreign Exchange Implications for Foreign Corporations
343
A. Determination of Earnings and Profits of Foreign Corporations
343
B. Amount of Deemed Paid Taxes under Sections
902, 960
and 1293(f
) 345
§ 8.8
South African Taxation of Dividends Paid by a U.S. Sub to its South
African Parent
345
Chapter
9
Section
482:
Transactions between Commonly Controlled
Corporations
349
§9.1
Scope
349
§ 9.2
Scope and Purpose of
§ 482 350
§9.3
Procedures under
§482
and Valuation Misstatement Penalty
350
A. Introduction
350
B. Valuation Misstatement Penalty
351
C. Advance Pricing Agreements
35
1
1.
Introduction
351
Advance Pricing Agreements, Revenue Procedure
2004-40 351
2.
APA
Provisions of Taxpayer Relief Extension Act of
1999 352
Conference Taxpayer Relief Extention Act of
1999 352
§ 9.4
The
1986
Amendments to
§ 482:
The Super Royalty Provision
353
§9.5
Regulations Relating to Transfers of Tangible and Intangible Property
355
A. Background: Preamble to the
1994
Final Regulations
355
Treasury Decision
8552 355
B. Purpose and Scope: Arm s Length, Best Method and Comparability:
Preamble to Final Reg.
§ 1.482-1 358
Treasury Decision
8552 358
С
Rules Governing the Transfer of Tangible Property: Preamble to
Final Reg.
§1.482-3 362
Treasury Decision
8552 362
D. Rules Governing the Transfer of Intangible Property: Reg.
§ 1.482-4 365
1.
Preamble to the
1994
Final Regulations
365
Treasury Decision
8552 365
2.
Preamble to
2003
Proposed Regulations
368
Preamble to Reg-
146893-02 368
xx CONTENTS
E.
Rules Governing the Comparable Profit Method: Preamble to Final
Reg.
§1.482-5 371
Treasury Decision
8552 371
F. Rules Governing Profit Split Method: Preamble to Final Reg.
§1.482-6 374
Preamble to Treasury Decision
8552 374
G.
1RS
Section
482
Settlement with GlaxoSmithKline
376
1RS
News Release (IR-2006-142) on IRS-GlaxoSmithKline Transfer
Pricing Settlement
376
§9.6
Introduction to Cost Sharing Agreements under Reg.
§ 1.482-7 377
Preamble to Treasury Decision
9088 377
§9.7
Treatment of Services under the
2006
Temporary Regulations
378
Temporary Rules on Services Treatment and Stewardship Expenses
under Section
482,
Treasury Decision
9278 378
§9.8
Treatment of Loans and Advances
385
§ 9.9
Use of Tangible Property
386
§9.10
Global Trading: Allocation and Sourcing of Income and Deductions
386
Preamble to Proposed Regulation Reg-208297-90
386
§9.11
Technical Explanation of Associated Enterprises Article of Model
Treaty
388
1996
U.S. Mode] Treaty, Technical Explanation of Associated
Enterprises, Article
9 388
§9.12
South African Approach to Taxing Related Party Transactions
—
Transactions between U.S. Parent and South African Sub
389
Chapter
10
Controlled Foreign Corporations
393
§10.1
Scope
393
§ 10.2
Legislative Background
394
General Explanation of the Tax Reform Act of
1986 394
§ 10.3
Interrelationship between Imputation Provisions Governing Foreign
Corporations
396
A. Introduction
396
B. Impact of the Jobs Creation Act of
2004 397
Repeal of Foreign Personal Holding Company Rules
and Foreign Investment Company Rules
397
§ 10.4
Definition of Controlled Foreign Corporation
398
A. Legislative Background
398
General Explanation of the Tax Reform Act of
1986 398
B. Further Elaboration
399
§ 10.5
Determination of Direct and Indirect Stock Ownership under the
Controlled Foreign Corporation Provisions
400
§ 10.6
Imputation of Earnings of Controlled Foreign Corporations
401
A. In General
401
B. Types of Income Imputed and Determination of Pro
Rata
Shares
401
С
Coordination with Passive Foreign Investment Company Provisions
403
§ 10.7
Subpart F
Income
403
A. In General
403
B. Foreign Base Company Income
404
I. In General
404
CONTENTS xxi
2. The De
Minimis
Rule and
70%
Rule
404
3.
Exception for High Taxed Income
405
4.
Treatment of Deductions
405
C. Foreign Personal Holding Company Income
405
1.
In General
405
2.
Exception from Foreign Personal Holding Company Income under
Subpart F
for Active Financing Income: Impact of Taxpayer Relief
Act of
1997 406
Revenue Reconciliation Act of
1997 406
Note on Impact of TIPRA
(2006)
on Active Banking and Financing
Exception
407
3.
Use of Check-the-Box Regulations to Avoid FPHCI on Sale of
Stock of a CFC
—
Check and Sell in Dover
407
Dover Corporation v. Commissioner
407
4.
The TIPRA
2006
Rules on Look-Through Payments
413
Tax Increase Prevention and Reconciliation Act of
2005
( TIPRA ),
Act Sec. 103(b). Look-Through Treatment of Payments between
Related Controlled Foreign Corporations under Foreign Personal
Holding Company Income Rules
413
D. Foreign Base Company Sales Income
414
1.
In General
414
2.
Foreign Sub Engages in Manufacturing to Avoid Foreign Base
Company Sales Income
416
Dave Fischbein
Manufacturing Co. v. Commissioner
416
3.
Use of Partnership to Avoid Foreign Base Company Sales
Income
—
The Treasury s Reaction to Brown Group
419
Notice of Proposed Rule Making Reg-1
12502-00 419
E. Foreign Base Company Services Income
421
§ 10.8
Investment of Earnings in United States Property
421
A. Introduction
421
B. Temporary Repayment of Loan
422
Revenue Ruling
89-73 422
§ 10.9
Adjustments in Basis of Stock for Amount of Imputed Income and
Exclusion for Distribution of Previously Taxed Earnings and Profits
424
A. Introduction
424
B. Impact of Taxpayer Relief Act of
1997
on Sales of Lower Tier CFCs
and Certain Section
1248
Sales
424
Senate Finance Committee Report
424
§ 10.10
Indirect Foreign Tax Credit
426
§ 10.11
Miscellaneous Provisions
426
§ 10.12
Use of Hybrid Entities to Reduce Foreign Tax on CFCs
427
A.
1RS
Initial Notice on Treatment of Hybrid Arrangements under
Subpart F
427
Notice
98-11 427
B.
Temporary Regulations
428
Preamble to Treasury Decision
8767 428
С
Announcement of Withdrawal of Temporary Regulations
429
Notice
98-35 429
xxii
CONTENTS
D.
Joint
Committee Recommendation to Modify the Check-the-Box
Rules
430
Staff of Joint Committee on Taxation, Options to Improve Tax
Compliance and Reform Tax Expenditures
430
§ 10.13
Incentive to Reinvest Foreign Earnings in the U.S.: Section
965 430
Incentives to Reinvest Foreign Earnings in the United States
430
§ 10.14
Summary Problems on Controlled Foreign Corporations
431
§ 10.15
Stapled Entities and Dual Listed Company Structures
432
Preamble from Treasury Decision
9216 432
§ 10.16
Treatment of Dual Chartered Companies
433
Treasury Department News Release JS-1854
433
§ 10.17
Policy Perspective on Controlled Foreign Corporations
434
A. Treasury s
Subpart F
Study: Impact Generally and on E-commerce
434
The Deferral of Income Earned through U.S. Controlled Foreign
Corporations
434
B. Recommendation of the President s
2005
Tax Advisory Panel for
Adoption of a Territorial Regime
443
President Bush s
2005
Tax Advisory Tax Panel
443
С
A Proposal to Expand the Foreign Base Company Sales Income
Provisions
447
Thompson, A Critical Perspective on the Thomas Bill
447
D.
2006
House Testimony Supporting Pass-Through Taxation of Foreign
Income
448
Stephen Shay Testifies at W&M Panel Hearing on U.S. International
Competitiveness
449
Graetz Testifies at W&M Panel Hearing on U.S. International
Competitiveness
451
§ 10.18
South African Taxation of South African Controlled Foreign
Companies
452
A. Introduction
452
B. Basic Imputation Rules
452
C. Exceptions to the Basic Imputation Rule
453
Chapter
11
Passive Foreign Investment Companies
455
§11.1
Scope
455
§ 11.2
Introduction
455
§ 11.3
Legislative Background of PFICs
456
General Explanation of the Tax Reform Act of
1986 456
§ 11.4
Definition of PFIC
458
A. Legislative Background
458
General Explanation of the Tax Reform Act of
1986 458
B. Further Elaboration on the Definition of a PFIC
459
С
Illustration of the Breadth of the PFIC Definition: Foreign
Manufacturing Corporation Treated as a PFIC
460
Revenue Ruling
87-90 460
§ 11.5
Tax and Interest Charge on Deferred Income
461
A. Introduction
461
B. Deferred Tax Amount
462
§ 11.6
Qualified Electing Funds
462
CONTENTS xxiii
Α.
Legislative
Background
462
General
Explanation of the Tax Reform Act of
1986 462
Б.
Definition of Qualified Electing Funds
463
§11.7
The Mark-to-Market Election: Impact of Taxpayer Relief Act of
1997 463
Revenue Reconciliation Act of
1997 463
§11.8
Attribution and
Anti-
Avoidance Rules
464
§11.9
Summary Problems on the PFICs
465
Chapter
12
Introduction to Domestic and Foreign Taxable and Tax-Free
Mergers and Acquisitions
467
§ 12.1
Scope
467
§ 12.2
Overview of Taxable and Tax-Free Acquisition
467
A. In General
467
B. Foreign Acquiring Corporations
468
§ 12.3
Summary of Taxable Acquisitions and LBOs
468
A. Taxable Asset Acquisition
468
1.
In General
468
2.
Foreign Acquiring Corporations
469
B. Taxable Stock Acquisitions
469
1.
In General
469
2.
Foreign Acquiring Corporations
469
§ 12.4
Treatment of Target s Shareholders in a Taxable Acquisition
470
A. In General
470
B. Foreign Acquiring Corporation
470
§ 12.5
Treatment of a Target Corporation in a Taxable Acquisition
470
A. Stand-Alone (Nonsubsidiary)
Target Corporation
470
1.
In General
470
2.
Foreign Acquiring Corporation
471
B. Taxable Reverse and Forward Subsidiary (Triangular) Mergers
471
1.
Taxable Reverse Subsidiary Mergers
471
a. In General
471
b. Foreign Acquiring Corporations
473
2.
Taxable Forward Subsidiary Mergers
473
a. In General
473
b. Foreign Acquiring Corporations
474
C. Acquisition of a Target That Is a Subsidiary
474
1.
In General
474
2.
Foreign Acquiring Corporations
474
D. Summary of Treatment of Target Corporation
475
§ 12.6
Treatment of Acquirer in a Taxable Acquisition
475
A. In General
475
B. Foreign Acquiring Corporations
475
§ 12.7
Treatment of LBOs
476
A. In General
476
B. Foreign Acquiring Corporations
476
§ 12.8
Summary of Acquisitive Reorganizations
477
§ 12.9
Asset Reorganizations
477
A. The Direct Merger under §368{a)(l)(A)
477
xxiv CONTENTS
1. In General 477
2.
Foreign Acquiring
Corporation 479
В.
Forward Subsidiary Merger under Section 368(a)(2)(D)
479
1.
In General
479
2.
Foreign Acquiring Corporation
480
С
Direct Stock for Asset Reorganization under Section 368(a)(
1
)(C)
481
1.
In General
481
2.
Foreign Acquiring Corporation
482
D. Triangular Stock for Asset Reorganization under Section 368(a)(
1
)(C)
482
1.
In General
482
2.
Foreign Acquiring Corporation
483
E. Nondivisive (D)
Reorganization under Sections 368(a)(l)(D) AND
354(b)
483
1.
In General
483
2.
Foreign Acquiring Corporation
484
F. Summary of Asset Reorganizations
484
§ 12.10
Stock Reorganizations and Acquisitive Section
351
Transactions
484
A. Reverse Subsidiary Merger under §368(a)(2)(E)
484
1.
In General
484
2.
Foreign Acquiring Corporation
485
B. Stock for Stock Reorganization under Section 368(a)(
1
)(B)
486
1.
In General
486
2.
Foreign Acquiring Corporation
486
С
Triangular (B) Reorganization under Section 368(a)( 1)(B)
487
D. The Acquisitive Section
351
Transaction and the Horizontal Double
Dummy
487
1.
In General
487
2.
Foreign Holding Company
489
E. Summary of Stock Reorganizations and Acquisitive Section
351
Transaction
489
§ 12.11
Over and Down Reorganizations under Section 368(a)(2)(C)
489
§ 12.12
Summary of Treatment of Parties to an Acquisitive Reorganization
489
A. In General
489
B. Foreign Acquiring Corporations
490
§ 12.13
The
Non-
Acquisitive Reorganizations
490
A. The Divisive (D) Reorganization: Spin-Offs
490
1.
Introduction
490
2.
The Divisive (D): Spin-Offs, Split-Offs and Split-Ups
490
B. The
(
E) Recapitalization
492
С
The (F) Mere Change in Form
492
§ 12.14
Introductory Problems on Reorganizations and Taxable Acquisitions
492
§ 12.15
South African Taxation of
Cross-Border
Mergers and Acquisitions
493
Chapter
13
Taxable Sale or Liquidation of Foreign Controlled U.S.
Corporations
495
§13.1
Scope
495
§ 13.2
Sale of Stock of Foreign Controlled Domestic Corporations
495
§ 13.3
Liquidation of Corporation: General Principles
496
A. Treatment of Shareholders in a
§331
Liquidation: General Principles
496
CONTENTS xxv
B.
Treatment of Corporation in a
§ 331
Liquidation: General Principles
496
C. Treatment of Parent Corporation on Liquidation of Controlled
Subsidiary: General Principles
497
D. Treatment of Controlled Subsidiary upon Liquidation into Corporate
Parent
497
§ 13.4
Liquidating Distributions by Domestic Corporations to
Noncontrolling Foreign Shareholders
497
§ 13.5
Liquidation of Domestic Subsidiary into Foreign Parent: Impact of
Section
367 498
A. Introduction
498
B. Regulations under Section 367(e)(2)
499
1.
The
1990
Temporary Regulations on Outbound
§332
Liquidations
499
Preamble to Treasury Decision
8280 499
2.
The
1999
Final Regulations on Outbound
§332
Liquidations
500
Preamble to Treasury Decision
8834 500
§ 13.6
Summary Problems on Sales and Liquidations
502
§ 13.7
Policy Perspective on Taxation of Capital Gains from Sale by Foreign
Person of Stock of a Domestic Corporation
503
Joint Committee Explanation of Foreign Income Tax Rationalization
Simplification Bill of
1992 503
Chapter
14
Taxable Sale and Acquisition of a Foreign Corporation: Impact of
Sections
1248
and
338 505
§14.1
Scope
505
§ 14.2
Introduction to the Impact of Section
1248
on the Sale of Stock of
a CFC
505
A. Purpose and Effect of Section
1248 505
B. Indirect Credit for Corporations
506
С
Earnings and Profits
—
Determination
507
D. Special Rules Not Covered
507
E. Summary Problem
507
§ 14.3
Introduction to the Impact of Section
338
on the Taxable Acquisition
of the Stock of a Foreign Target
508
A. Introduction
508
B. Evolution of Consistency Regulations under Section
338 509
1. 1992
Proposed Consistency Regulations in the Domestic Context
509
Preamble to Proposed Regulations
509
2.
Operation of the Final Consistency Regulations in the Domestic
Context
510
3. 1992
Proposed Consistency Regulations in the International
Context
511
Preamble to Proposed Regulations
511
4. 1994
Consistency Regulations under Section
338
Relating to
Controlled Foreign Corporations
512
Preamble to Treasury Decision
8516 512
5. 1997
Final Consistency Regulations under Section
338
Relating
to Controlled Foreign Corporations
512
Preamble to Treasury Decision
8710 512
xxvi CONTENTS
6. Illustration
of the
Final
Consistency Rule in the International
Context
513
С
Operation of Section
1248
in the Section
338
Context
514
1.
The Original
1986
Temporary Regulations Dealing with Sections
1248
and
338 514
Preamble to Treasury Decision
8074 514
2.
The
1992
Proposed Regulations Dealing with Sections
1248
and
338 517
Preamble to Proposed Regulations
(
CO-
111 -90 ) 517
3.
The
1994
Final Regulations on Sections
1248
and
338 518
Preamble to Treasury Decision
8515 518
4.
Excerpts from the Final Regulations on International Aspects of
Section
338, §1.338-9 519
§ 14.4
Taxable Acquisition by U.S. Acquirer of the Stock or Assets of a
Foreign Owned Foreign Corporation
522
A. Introduction
522
B. Taxable Sale and Acquisition of the Stock of a Foreign Owned
Foreign Target
522
C. Taxable Sale and Acquisition of the Assets of a Foreign Owned
Foreign Target
523
§ 14.5
Taxable Acquisition by U.S. Acquiror of Stock or Assets of a
CFC Target
523
A. Introduction
523
B. Taxable Sale and Acquisition of the Assets of a CFC Target
523
C. Taxable Sale and Acquisition of the Stock of a CFC Target
524
Chapter
15
Cross Border Acquisitive Reorganizations and Spin-Offs
527
§15.1
Scope
527
§ 15.2
Impact of Section
367
on Acquisitive Reorganizations
528
A. Introduction
528
B. Introduction to the
2006
Final Regulations Permitting a Merger
Involving a Foreign Corporation to Qualify as an A Reorganization
529
1.
Preamble to the
2006
Final Regulations Relating to the Definition
of the A Reorganization
529
Preamble to Final Regulations on Statutory Mergers and
Consolidations, Treasury Decision
9242 529
2.
Excerpts from the
2006
Final Regulations; Basic Principles,
Merger into a Disregarded Entity, and Foreign Mergers and
Amalgamations
532
3.
Overlap between (A) and (C)
534
4.
Introduction to the Section
367
Regulations Responding to the
Change in the Definition of the (A)
534
Preamble to the
2006
Final
367
Regulations, Treasury Decision
9243 534
§ 15.3
Elaboration on Impact of Section
367
on Acquisitive Reorganizations,
Section
351
Transactions and Spin-Offs
535
A. In General
535
B. Purpose of Section
367
and Controlled Foreign Corporation and
Related Provisions
535
1.
Section
367 535
2.
Controlled Foreign Corporation and Related Provisions
537
CONTENTS
xxvu
С.
Elaboration on Structure
of
Section
367
as Applicable
to Acquisitive
Reorganizations and Acquisitive Section
351
Transactions
538
1.
Section 367(a)(l) Gain Recognition Rule for Outbound
Transfers
538
2.
Section 367(a)(6) Exceptions to Gain Recognition Rule for
Outbound Transactions Described in Regulations
538
3.
Section 367(a)(2) Exception to Gain Recognition Rule for Transfer
of Stock or Security of Foreign Corporations
538
4.
Section 367(a)(3) Exception to Gain Recognition Rule for Certain
Outbound Incorporations
539
5.
Section 367(a)(5) Exception to the Section 367(a)(2) and
(3)
Exceptions
539
6.
Section 367(b) Rules for Nonoutbound Transfers
539
§ 15.4
Forms of Outbound, Inbound, and Foreign-to-Foreign Acquisitive
Reorganization Transactions Involving U.S. Shareholders
540
A. Applicability of Section
367
to Outbound Reorganizations and
Certain Foreign-to-Foreign Reorganizations
540
B. Direct Outbound Transfers of Stock or Assets
540
C. Indirect Outbound Transfers of Stock of a Domestic Target
541
D. Inbound Acquisitions of Stock or Assets
541
E. Foreign-to-Foreign Transfers of Stock or Assets
541
F. Summary of Outbound and Foreign-to-Foreign Acquisitive
Reorganizations and Section
351
Acquisitive Transactions Governed
by Section
367 542
G. Interface between Section
304
and Section
367 543
Preamble to Final Regulations: Application of Section
367
in Cross
Border Section
304
Transactions; Certain Transfers of Stock
Involving Foreign Corporations
543
§ 15.5 2004
Anti-
Inversion Legislation, Section
7874 545
A. Introduction to Inversions Generally
545
B. Background on the Inversion Problem
545
Excerpt from Thompson, Treasury s Inversion Study Misses the Mark:
Congress Should Shut Down Inversions Immediately
545
C. Approach to Inversions Suggested by Senators Grassley and Baucus
546
Excerpt from Thompson, Analysis of the Non-Wimpy Grassley/
Baucus Inversion Bill
546
D. Analysis of the May
2002
Treasury Inversion Study
549
Excerpt from Thompson, Treasury s Inversion Study Misses the Mark:
Congress Should Shut Down Inversions Immediately
549
E. Anti-Inversion Provision Enacted by the American Jobs Creation
Act of
2004,
Section
7874 552
Conference Committee Report to the American Jobs Creation Act of
2004 552
F. The First Set of Regulations under the Anti-Inversion Provision,
Section
7874:
Hook Stock and Intergroup Transfers
554
Preamble to Treasury Decision
9238 554
G. Proposed Changes to Section
7874,
Senate Summary of Tax Relief
Act of
2005 558
xxviii CONTENTS
Senate
Staff Summary,
Memorandum,
From: Finance Committee
Tax Staff
558
§ 15.6
The Outbound Regulations under Section
367
Relating to Transfers
of Stock of Domestic Corporations
559
A. Notice of Modifications to Regulations for Certain Tax Avoidance
Transactions
559
1RS
Notice
94-46 559
B. The Final Section
367
Inversion Regulations Relating to Direct
Transfers of Stock of U.S. Targets
560
Preamble to Treasury Decision
8702 560
C. Final Section
367
Inversion Regulations Regarding Indirect Transfers
of Stock of Domestic Targets in Triangular Reorganizations
565
Preamble to Treasury Decision
8770 565
D. Applicability of Section
367
Inversion Regulations to an Exchange of
Securities
566
Preamble to Final Section 367(a) Regulations Relating to Treatment of
Outbound Asset Reorganizations, Treasury Decision
9243 566
E. Applicability of Section
367
Inversion Regulations to Acquisition of
Domestic Target by Foreign Sub of Domestic Acquiror
567
Preamble to Final Section 367(a) Regulations Relating to Treatment
of Outbound Asset Reorganizations, Treasury Decision
9243 567
F. Proposed Amendments to Gain Recognition Agreement Provisions
567
Proposed New Rules on Gain Recognition Agreements and Common
Asset Reorganizations
567
§ 15.7
Impact of Sections
367
and
7874
on Direct Outbound Transfer of
Stock of Domestic Target to a Foreign Acquiror in a (B) Reorganization
or in an Acquisitive Section
351
Transaction
569
A. General Principles under Section
367 569
B. General Principles under Section
7874 574
C. Summary of U.S. Tax Results under Section
367
Regulations and
Section
7874 575
D. The
DaimlerChrysler
Acquisition of Chrysler as a (B) Reorganization
or an Acquisitive Section
351
Transaction
576
E. Critique of General Principles
577
§ 15.8
Impact of Sections
367
and
7874
on Indirect Outbound Stock
Transactions: Reorganizations Involving the Acquisition of Stock of a
Domestic Target by a Foreign Acquiror in a Triangular Reorganization
Involving a Subsidiary of the Foreign Acquiror
578
A. General Principles
578
1.
Introduction
578
2.
Indirect Outbound Forward Subsidiary Merger of U.S. Target into
U.S. Sub of Foreign Acquiror: The Aborted British Telcom-MCI
Merger
578
3.
Indirect Outbound Reverse Subsidiary Merger: The Vodafone-
AirTouch Merger
580
4.
Indirect Outbound Triangular (B) Reorganization
581
5.
Indirect Outbound Triangular (C) Reorganization
582
6.
Economic Effect of Indirect Outbound Triangular Reorganizations
and Impact of Sections
367
and
7874 582
CONTENTS xxix
В.
Critique
of
General
Principles
583
§ 15.9
Impact of Section
367
and Section
7874
on Outbound Transfer of
Domestic Target s Assets to Foreign Acquiror in an Outbound Asset
Reorganization
584
A. Scope of Transactions
584
B. General Principles under Section
367 584
1.
Treatment
of U.S. Target
584
2.
Treatment of Shareholders of U.S. Target
585
C. Prototype Direct Outbound Asset Reorganization
587
1.
The Transaction
587
2.
General Principles under Section
7874 587
3.
Summary Tax Results under Sections
367
and
7874 588
4.
Change in Results for Triangular Outbound Asset Reorganization
588
D. Critique of General Principles
588
§ 15.10
Proposed Liberalization and Tightening of Section
367
Inversion
Regulations in View of the Enactment of Section
7874 589
Excerpt from Thompson, Section
367:
A Wimp for Inversions and a
Bully for Real Cross Border Acquisitions
589
§ 15.11
Summary Problems on Outbound Acquisitive Reorganizations
under Section
367 592
§15.12
Introduction to Section 367(b)
593
§ 15.13
Legislative Background to Section 367(b)
594
General Explanation of the Tax Reform Act of
1976 594
§ 15.14
General Principles Underlying the Regulations under Section 367(b)
595
A. The
1991
Proposed Regulations under Section 367(b)
595
Preamble to Notice of Proposed Rulemaking
595
B. The
2000
Final Regulations under Section 367(b)
596
Preamble to Treasury Decision
8862 596
§ 15.15
Scope of Regulations:
§
i.367(b)-l
597
A. The
1991
Proposed Regulations under
§
1.367(b)-l
597
Preamble to Notice of Proposed Rulemaking
597
B. The
2000
Final Regulations Under
§
1.367(b)-
1 597
Preamble to Treasury Decision
8862 597
§ 15.16
Definitions and Special Rules under the Regulations:
§
1.367(b)-2
598
A. The
1991
Proposed Regulations under
§
1.367(b)-2
598
Preamble to Notice of Proposed Rulemaking
598
B. Further Elaboration on §1.367(b)-2
598
C. The
2000
Final Regulation, §1.367{b)-2
598
Preamble to Treasury Decision
8862 598
§ 15.17
Inbound Asset Acquisitions: Acquisition by a Domestic Acquiring
Corporation of the Assets of a Foreign Target:
§ 1
.367(b)-3
600
A. Introduction
600
B. The
1991
Proposed Regulations under
§
1.367(b)-3
600
Preamble to Notice of Proposed Rulemaking
600
С
The
2000
Final Regulations under
§ 1
.367(b)-3
601
Preamble to Treasury Decision
8862 601
D. Illustration: Acquisition by U.S. Acquiror or Its U.S. Sub of Assets of
Foreign Target in an inbound (C) Reorganization
603
E. Summary Tax Results
605
CONTENTS
F.
Critique
of
General
Principles
606
G.
Reorganizations and the Foreign Real Property Tax Act (FIRPTA)
606
Announcement of Rules to be Included in Final Regulations under
Sections 897(d) and (e) of the Code
606
§ 15.18
Inbound Stock Acquisitions: Acquisition by a Domestic Acquiring
Corporation of the Stock of Foreign Target
608
A. Final
1998
Section
367
Regulations
608
Preamble to Treasury Decision
8770 608
B. Elaboration
609
С
Illustration
609
D. Summary Tax Results
610
E. Critique of General Principles
610
§ 15.19
Foreign-to-Foreign Stock and Asset Reorganizations: Acquisition by
Foreign Acquiring Corporation of Stock or Assets of a Foreign Target
611
A. Introduction
611
B. Acquisitions by Foreign Acquiring Corporation of Stock of Foreign
Target from U.S. Shareholders: Impact of Section 367(a)
612
Preamble to Treasury Decision
8770 612
С
Concurrent Application of Section 367(a) and
(b)
Regulations
615
1. 2005
Proposed Regulations on Concurrent Application
615
Preambles to Proposed Regulations and Proposed Amendments of
Regulations
615
2. 2006
Final Regulations on Concurrent Application
616
Preamble to Final Section 367(a) Regulations Relating to Treatment of
Outbound Asset Reorganizations, Treasury Decision
9243 616
D. Foreign-to-Foreign Stock and Asset Reorganizations: Impact of Reg.
§1.367(b)-4
617
1.
Introduction
617
2.
The Proposed Regulations under
§ 1
.367(b)-4
617
Preamble to Notice of Proposed Rulemaking
617
3.
The
2000
Final Regulations under §1.367(b)-4
618
Preamble to Treasury Decision
8862 618
E. Illustration of Concurrent Application of Sections 367(a) and (b) in
Foreign-to-Foreign Stock and Asset Reorganizations: The Daimler-
Chrysler Transactions
620
1.
Introduction
620
2.
Impact of Section 367(b)
620
3.
Potential Impact of Section 367(a)
621
4.
Illustration of the Concurrent Application of the Rules of Section
367(a) and (b)
621
5.
Summary Tax Results
622
6.
Impact of Rules under Section 367(b) and Section 367(a) on
DaimlerChryler s Acquisition of Daimler-Benz
623
F. The Serivce s Position on Killer B s
624
1.
Treasury News Release on Triangular Reorganizations Involving
Foreign Corporations
624
Treasury and
1RS
Announce Regulations to be Issued with Respect to
Certain Triangular Reorganizations under Section 368(a)
Involving Foreign Corporations
624
CONTENTS xxxi
2. 1RS
Notice on
Killer B^ 624
Treatment under Section 367(b) of Property Used to Purchase Parent
Stock in Certain Triangular Reorganizations
624
§ 15.20 2006
Final Regulations on Carryover of Earnings and Profits in
Section 367(b) Transactions
629
Final Regulations: Carryover Rules for Section 367(b) Transactions
Involving Foreign Corporations
629
§ 15.21
Special Rules in Determining Basis and Holding Period in a Section
367(b) Transaction, §1.367(b)-
13 631
A.
2005
Proposed Basis Regulations,
§ 1
.367(b)-
13 631
Preambles to Proposed Regulations and Proposed Amendments to
Regulations
631
B.
2006
Final Basis Regulations, §1.367(b)-13
633
Preamble to Final Section 367(a) Regulations Relating to Treatment of
Outbound Asset Reorganizations, Treasury Decision
9243 633
§ 15.22
Summary Problems on Outbound and Foreign to Foreign Acquisitive
Reorganizations
634
§ 15.23
Section
355
Spin-Offs by Domestic Corporations of Domestic Sub
to Foreign Shareholders
635
A. In General
635
B. Spin-Off by Domestic Distributing Corporation to Foreign
Shareholder
636
1.
Introduction
636
2.
Final Regulations on Spin-Offs under Section 367(e)(
1 ) 636
Preamble to Treasury Decision
8834 636
3.
Summary of Rules under Reg.
§
1.367(e)-
1
and Relationship to
Reg.
§
1.367(b)-5 and Section 1248(f)
638
§ 15.24
Section
355
Spin-Off
( 1 )
by Foreign Corporation, and
(2)
of Foreign
Controlled Corporation: Reg.
§
1.367(b)-5
638
A. Introduction
638
B. Proposed Regulations: Prop. Reg.
§
1.367(b)-5
638
Preamble to Notice of Proposed Rulemaking
638
С
2000
Final Regulations
639
Preamble to Treasury Decision
8862 639
§ 15.25
Impact of Sections 1248(a) and (f) on Spin-Offs by Domestic
Corporations of CFCs
641
Index of Major Concepts
643
|
| adam_txt |
Contents
Table of Cases
xxxiii
Table of Principal Revenue Rulings and Revenue Procedures
xxxv
Preface
xxxvii
Acknowledgments
xxxix
Chapter
1
Scope and Introduction
3
§1.1
Scope and Introduction
3
A. Scope of Book
3
B. Scope of Chapter
5
§ 1.2
Introduction to Present Law Taxation of Outbound and Inbound
Transactions
6
Staff of the Joint Committee on Taxation Overview of Present-Law
Rules and Economic Issues in International Taxation
6
§ 1.3
Domiciliary and Source Jurisdiction
12
A. Introduction and Potential for Double Taxation
12
B. Constitutionality of U.S. Taxation of Citizens on Worldwide Income
13
Cookv.
Tait
13
Questions
14
§ 1.4
Exclusion for Certain Foreign Source Income of U.S. Citizens and
Resident Aliens
15
Note on
2006
TIPRA Amendments to Section
911 16
§ 1.5
Outline of Basic Statutory Provisions Governing the Taxation of
Nonresident Aliens and Foreign Corporations
16
A. General Rules
16
B. Exceptions
17
§ 1.6
Introduction to the Structure and Purpose of the Sourcing Rules
18
A. In General
. 18
B. Sources Wholly within or Wholly without the U.S.
19
С
Sources Partly within and Partly without the U.S.
20
§ 1.7
General Description of Tax Treatment of the Domestic and Foreign
Operations of the Three Basic Forms of Business Entities
21
A. Introduction
21
B. Determining Whether a Corporation Is Foreign or Domestic
21
С
The
С
Corporation
21
1.
The Domestic
С
Corporation
21
2.
The Foreign
С
Corporation
23
D. The Partnership and Limited Liability Company
23
1.
The Domestic Partnership
23
2.
The Foreign Partnership
24
viii
CONTENTS
E.
Classification
of an Entity as a Partnership, an Association Taxable
as a Corporation or as a Disregarded Entity
25
1.
The Entity Classification Regulations: The "Check the Box"
Regulations
25
Preamble to the Final Entity Classification Regulations
25
Note and Questions
27
2.
Regulations Dealing with the Per
Se
Classification of the European
Public Limited Liability Company
27
Preamble to Final and Temporary Regulations on per
se
Classification
of the European Public Limited Liability Company
27
3.
Illustration: Impact of Disregarded Entity Classification on
Determination of Whether a Lower Tier Entity Is a Partnership
28
Revenue Ruling
2004-77 28
4.
Agreements with Foreign Owners on Classification of Foreign
Joint Venture Entity
29
F. The
S
Corporation
30
§ 1.8
Introduction to International Tax Arbitrage and the Problem of Double
Nontaxation
31
§ 1.9
Introduction to Economic and Policy Issues in U.S. Taxation of
International Transactions
32
A. In General
32
Staff of the Joint Committee, Taxation Overview of Present-law Rules
and Regulations and Economic Issues in International Taxation
32
B.
2007
International No Ruling Areas
53
Revenue Procedure
2007-7
International Areas for which Rulings and Determination Letter
Will Not Be Issued
53
C. Treasury and
1RS
Priority Guidance Plan for International Issues
—
2006-2007 57
Department of the Treasury
2006-2007
Priority Guidance Plan
* * * 57
§ 1.10
Introduction to the South African Income Tax System
60
§ 1.11
References
63
Chapter
2
Introduction to Tax Treaties
65
§2.1
Scope
65
§ 2.2
Introduction
65
A. In General
65
Note on the
2006
Treasury Model Treaty
67
B. Introduction to
1996
Model Income Tax Treaty (See also November
2006
Model Tax Treaty)
67
United States Model Income Tax Convention of September
20, 1996
Technical Explanation and Preamble
67
C. Treasury Explanation of U.S. Treaty Policy
68
Testimony by Patricia Brown, Deputy International Tax Counsel, U.S.
Treasury, on Pending Income Tax Agreements, before the Senate
Committee on Foreign Relations
68
§ 2.3
Elaboration on the Purpose of Tax Treaties
72
CONTENTS ix
American
Law
Institute,
Federal Income Tax Project,
International Aspects of United States Income Taxation II
72
§ 2.4
Model Income Tax Treaty
—
Introductory Provisions
76
A. In General
76
B. Residence
77
C. Other Definitions
77
D. Scope of Treaty
77
E. Savings Clause
77
1.
Introduction
77
2.
Technical Explanation of Savings Clause of Model Treaty
78
1996
U.S. Model Income Tax Treaty, Technical Explanation of Article
1 78
F. Taxes Covered
79
§2.5
Special Substantive Provisions of the Model Treaty
79
§2.6
Administrative and Miscellaneous Provisions of the Model Treaty and
Relationship between Treaties and Statutes
79
A. The Model's Administrative and Miscellaneous Provisions
79
B. Relationship between Statutes and Treaties
80
§2.7
Disclosure of Treaty Based Positions
80
§ 2.8
Introduction to Treaty Abuses
81
Comments on Tax Treaty Abuses
81
§ 2.9
Introductory Problems on Treaties
83
§2.10
B. Treasury's
1996
Model Treaty (See also November
2006
Model Tax
Treaty)
83
U.S. Model Income Tax Convention of September
20, 1996 83
Chapter
3
U.S. Taxation of the U.S. Source Non-Trade or Business Income
of Nonresident Aliens and Foreign Corporations
101
§3.1
Scope
101
§3.2
Determinining if a Foreign Corporation or Nonresident Alien Is
Engaged in the Conduct of a U.S. Trade or Business
102
A. Introduction
102
B. Isolated Purchases and Sales
102
Continental Trading, Inc. v. Commissioner
102
C. Does Net Leasing Constitute a Trade or Business
104
Revenue Ruling
73-522 104
D. Effect of Agency Agreement
106
Revenue Ruling
70-424 106
§3.3 30%
Gross-basis Tax on Fixed and Determinable Interest, Dividend,
and Royalty Income
106
A. General Rules
106
B. Interest
107
1.
In General
107
2.
Original Issue Discount Obligations
107
3.
Interest on Certain Deposits
108
4.
Exemption for Portfolio Interest
108
a. Legislative Background
108
General Explanation of the Revenue Provisions of the Deficit
Reduction Act of
1984 108
b. Further Elaboration
110
CONTENTS
і.
In General 110
ii.
Final
Regulations Dealing with the Issuance of Bearer
Bonds under §162(f)(2)(B) 111
Treasury Decision
8300 111
с
Introduction to the Impact of the Securities Act of
1933
on the
Issuance of Eurobonds
113
i. In General
113
ii. Regulation
S
under the Securities Act of
1933 114
Regulation S-Rules Governing Offers and Sales Made outside the
United States without Registration under the Securities Act of
1933 114
С
Dividends
117
D. Royalties and Other Items of Fixed or Determinable Income
117
§3.4
Treaty Provisions Governing Fixed or Determinable Interest,
Dividends, and Royalty Income
118
A. Taxation of Dividends
118
B. Taxation of Interest
118
C. Taxation of Royalties
118
D. Technical Explanation of Dividend, Interest and Royalty Provisions
of Model Treaty
119
1996
U.S. Model Income Tax Treaty, Technical Explanation
119
E. Anti-Treaty Shopping Provisions
121
§3.5
Implementation of
30%
Gross-Basis Tax by Withholding
121
A. Introduction
121
B. Section
1441 121
C. Section
1442 122
D. Withholding Procedures
122
E. Illustration of Impact of Sections
881
and
1442 122
Central
De Gas De
Chihuahua,
S.A.
v. Commissioner
122
Question
124
F. Final Regulations Dealing with Withholding under Sections
1441
and
1442 124
1.
The Preamble to the Final Regulations
124
Preamble to TD
8734
(Oct.
4, 1997) 124
2.
Application Procedure to Become a Qualified Intermediary
127
Revenue Procedure
2000-12 127
§ 3.6
Treatment of Non-Trade or Business Capital Gain Income
128
A. Statutory Provisions
128
B. Determining Whether the Trading in U.S. Stocks, Securities and
Commodities Constitutes a United States Trade or Business
129
1.
In General
129
2.
Revenue Reconciliation Act of
1997,
Senate Finance Committee
Report No.
105-33
(June
19, 1997)
(Enacted by Taxpayer Relief
Act of
1997) 130
Simplify Stock and Securities Trading Safe Harbor
130
C. Treaty Provisions
131
1.
Introduction
131
2.
Technical Explanation of Gains Provision of Model Treaty
131
1996
U.S. Model Treaty, Technical Explanation of Gains
131
CONTENTS xi
§ 3.7
Summary
Problems
on
Taxation
of U.S. Source Interest, Dividend,
Royalty, and Capital Gain Passive Income
132
§3.8
Taxation of Rents and Gain from Non-Trade or Business U.S. Real
Property Interests
13 2
A. Taxation of Real Property Rental Income
132
B. Taxation of Gain on the Disposition of U.S. Real Property
133
1.
Introduction
133
2.
U.S. Real Property Interest Defined
133
3.
General Rule and Exceptions
134
C. Imposition of Withholding Tax
135
1.
Introduction
135
2.
Special Rules for Certain Entities
135
3.
Exemptions from Withholding
135
4.
Other Provisions
136
D. Reporting Requirements
136
E. Taxation of Rents and Gains from Real Property under the Model
Treaty
136
1.
Introduction
136
2.
Technical Explanation of Model Treaty's Treatment of Income
from Real Property
137
1996
U.S. Model Income Tax Treaty, Technical Explanation
of the Real Property Provisions, Article
6
and Article
13 137
F. Summary Problems on Rents and Gain from U.S. Real Property
Interest
138
§ 3.9
Denial of Treaty Benefits for Certain Payments to Hybrid Entities:
Impact of Taxpayer Relief Act of
1997 139
Statement of Managers on Taxpayer Relief Act of
1997
(HR
2014)
Conference Report
139
§3.10
South African Taxation of South African Source Non-Trade or
Business Income of U.S. Persons
141
Chapter
4
U.S. Taxation of the Personal Services Income of Nonresident
Aliens
145
§4.1
Scope
145
§4.2
Determining Whether an Alien Is a Resident or a Nonresident
145
§4.3
Performance of Services in the U.S. by a Nonresident Alien: Trade or
Business and Sourcing Rules
147
A. Introduction
147
B. Withholding on U.S. Personal Services Income
147
§4.4
Taxation under the Model Treaty of Income from Personal Services
148
A. Introduction
148
B. Technical Explanation, Articles of Model Treaty Dealing with
Personal Services and Directors' Fees
148
1996
U.S. Model Income Tax Treaty, Technical Explanation of
Independent Personal Services, and Directors' Fees
148
§ 4.5
Summary Problems on the Taxation of Income from Personal Services
151
§4.6
South African Taxation of Personal Service Income of Nonresident
U.S. Persons
152
xii CONTENTS
Chapter
5
Organizing and Operating a United States Business: Foreign
Controlled U.S. Corporations, Branches, and Partnerships
155
§5.1
Scope
155
§5.2
Direct Investment in the U.S. through the Formation of a
Domestic Corporation
156
A. Organizing a Domestic
С
Corporation
156
1.
Introduction
156
2.
Limitation on Transfer of Built-in Losses by the American Jobs
Creation Act of
2004 158
Conference Committee Report to the American Jobs Creation Act of
2004 158
B. Capitalizing a Domestic
С
Corporation
160
C. Repatriation of Earnings through Interest, Dividends and Royalties
161
1.
Basic Statutory Rules
161
2.
Impact of the Model Treaty
161
3.
The Zero Rate on Dividends in the U.S.-U.K. Treaty
162
4.
U.S. Treaty Policy on a Zero Rate for Inter-Company Dividends
163
Testimony by Patricia Brown, Deputy International Tax Counsel, U.S.
Treasury, on Pending Income Tax Agreements, before the Senate
Committee on Foreign Relations
163
5.
Introductory Problems on Repatriations
163
D. Limitation on Earnings Stripping through Interest Payments to
Related Tax-Exempt Persons
164
1.
Legislative Background
164
House Report to the Revenue Reconciliation Act of
1989 164
2.
Further Elaboration on Earnings Stripping
166
a. In General
166
b. Treatment of Guarantees
167
3.
Summary Problems on Earnings Stripping
168
4.
Earnings Stripping by a Nonresident Alien
168
5.
TIPRA
2006
Amendment Regarding Earnings Stripping and
Partnerships
169
E. Limitations on Treaty Shopping
169
1.
Introduction and Treaty "Sandwiches"
169
2.
Illustration of the Conduit Principle
170
Revenue Ruling
84-153 170
3.
Further Elaboration on the Conduit Principle
172
4.
Impact of the Model Treaty
173
a. Introduction
173
b. Technical Explanation of Limitation of Benefits Article of
Model Treaty
173
1996
U.S. Model Income Tax Treaty Technical Explanation of
Limitation on Benefits, Article
22 173
5.
Summary Problems on Treaty Shopping
176
6.
Impact of Section
7701(1) 176
a. Introduction
176
b. Legislative Background
176
House Report to the Revenue Reconciliation Act of
1993 176
с
The Regulations under Section
7701(1) 178
CONTENTS
xiii
Preamble to Proposed Regulations
178
d. The Final Regulations under Section
7701 ( 1 ) 179
Preamble to Treasury Decision
8611 179
F. Impact of
§482
on Structuring of Relationship between Controlling
Foreign Shareholder and Domestic Corporation
180
1.
Introduction
180
2.
Policy Perspective on Inbound
§482
Transactions
180
Joint Committee Explanation of the Foreign Income Tax
Rationalization and Simplification Bill of
1992 180
G. Information Reporting for Foreign Owned Corporations
183
§ 5.3
Direct Investment in the U.S. through Formation of a Branch
184
A. Introduction to the Concept of a U.S. Branch
184
B. Effectively Connected Income
184
1.
Introduction
184
2.
U.S. Source Fixed or Determinable Income and Capita) Gains
184
3.
Other Income from Sources within the U.S.
] 85
4.
Foreign Source Effectively Connected Income
185
a. In General
185
b. Illustration
186
Revenue Ruling
75-253 186
5.
Certain Prior Years' Transactions
187
6.
Policy Perspective: Clinton Administration Proposal to Change
the Taxation of Effectively Connected Income
188
General Explanations of the Administration's Fiscal Year
2001
Revenue Proposals Department of Treasury
188
C. Source of Income from Sale of Inventory and Other Personal
Property by U.S. Branch
190
1.
Introduction
190
2.
Legislative Background
190
General Explanation of the Tax Reform Act of
1986 190
3.
Planning Point Regarding Sales of Inventory through Foreign
Owned U.S. Branches
191
D. Computation of Taxable Income
193
1.
Introduction
193
2.
Deductions Generally
193
3.
Statutory Scheme
193
4.
Allocation and Apportionment of Interest Expense of U.S. Branches
194
a. Introduction
194
b. Proposed Regulations under
§ 1.882-5 194
Preamble to Prop. Reg.
§ 1.882-5
(INTL.
309-88) 194
с
Final Regulations under
§ 1.882-5 195
Preamble to Final Regulations, Treasury Decision
8658 195
5.
Return Requirements
1
96
E.
Taxation of Business Profits under the Model Treaty
—
The
"Permanent Establishment" Concept
197
1.
Introduction
197
2.
The Permanent Establishment Concept
197
a. Introduction
197
b. Illustration of the Permanent Establishment Concept
197
xiv CONTENTS
Revenue
Ruling
76-322 197
c.
Technical
Explanation of "Permanent Establishment"
Definition of Model Treaty
199
1996
U.S. Model Income Tax Treaty, Technical Explanation of
Definition of "Permanent Establishment"
199
3.
Taxation of Business Profits
200
a. Introduction
200
b. Technical Explanation of Business Profits Article of Model Treaty
201
1996
U.S. Model Income Tax Treaty, Technical Explanation of the
Business Profits Article, Article
7 201
4.
Illustration of the Impact of the U.S.-U.K. Treaty on the
Computation of Profits of a U.S. Branch of a U.K Bank
—
NatWest
202
National Westminster Bank, PLC v. United States
202
F. Summary Problems on Computation of Effectively Connected
Income and U.S. Source Taxable Income
207
G. Repatriation of Branch Profits: The Branch Profits Tax
208
1.
Legislative Background on the Branch Profits Tax
208
General Explanation of the Tax Reform Act of
1986 208
2.
Branch Profits Tax on Imputed Dividends
211
a. Introduction
211
b. General Rule
211
с
Exclusions and Adjustments
211
d. Coordination of Branch Profits Tax with Income Tax Treaties
213
i. Introduction
213
ii. Treatment of the Branch Profits Tax under the Model Treaty
214
Technical Explanation of Paragraphs
8
and
9
of Article
10,
Dividends,
of Model Treaty
· 214
3.
Branch Level Interest Tax
215
4.
Coordination with Withholding Tax on Dividends Paid by
Certain Foreign Corporations
215
5.
Introductory Problems on the Branch Profits Tax
216
H. Reporting Related to Foreign Corporations Doing Business in the U.S.
217
§ 5.4
Application of Net-Basis Tax and Withholding Rules to Partnerships
217
§ 5.5
Application of Net-Basis Taxation to E-commerce Conducted in the
U.S. by Foreign Persons
218
A. Introduction
218
B. An Approach to Inbound E-commerce Sales
218
Los Angeles County Bar Association Tax Section, Selected Issues in
Cross-Border Electronic Commerce Transactions
218
C. E-commerce Planning Opportunity: Sales into the U.S. by Tax-Haven
Controlled Foreign Corporation
224
§ 5.6
South African Taxation of U.S. Controlled South African Companies
and Branches
224
Chapter
6
Organization and Operation of Foreign Branches by U.S. Persons:
Impact of Foreign Tax Credit, Sourcing Rules, and Foreign
Currency Rules
227
§6.1
Scope
227
§ 6.2
Introduction
228
CONTENTS
xv
§6.3
Foreign Tax Credit: General Principles
228
A. Introduction
228
1.
Legislative History
228
General Explanation of the Tax Reform Act of
1986 228
2.
Further Elaboration
230
B. Meaning of Term "Foreign Income Tax"
232
1.
In General
232
2.
The Regulations
233
3.
"In Lieu of" Foreign Income Taxes
234
§ 6.4
Direct Foreign Tax Credit
234
A. Introduction
234
B. Separating the Foreign Tax from the Foreign Income through Check-
the-Box
—
Guardian Industries
235
Guardian Industries Corp. v. United States
235
Note
238
C.
2006
Proposed Regulations on Foreign Tax Credits: The Technical
Taxpayer Rule and Hybrid and Reverse Hybrid Entitites
238
Proposed Regulations, REG-124152-06
238
§6.5
Limitation on Foreign Tax Credit
241
A. General Principles
241
B. Separate Application of Section
904
to Various Baskets of Income
—
Prior to and after the American Jobs Creation Act of
2004 242
1.
Introduction
242
2.
Legislative Background from the
1986
Act
243
General Explanation of the Tax Reform Act of
1986 243
3.
Amendments to Section 904(d) by the American Jobs Creation
Act of
2004 244
Foreign Tax Credit Baskets and "Base Differences" House Committee
Report to the Jobs Creation Act of
2004 244
4.
Passive Income Basket after December
31, 2006 247
a. Introduction
247
b. Exclusions from Passive Income Basket, Export Financing
Interest and Certain High Taxed Income
247
C. Policy Perspective
248
Treasury Department Study, International Tax Reform: An Interim
Report
248
D. Introductory Problems on Direct Foreign Tax Credit from Operation
of a Foreign Branch
251
§ 6.6
Recapture of Overall Foreign Losses of a Foreign Branch for Foreign
Tax Credit Purposes
252
A. Introduction
252
B. Special Rule for Certain Dispositions
253
C. Recapture of Overall Foreign Loss on Disposition of Stock in
Controlled Foreign Corporation, as Amended by the American Jobs
Creation Act of
2004 253
Recapture of Overall Foreign Losses on Sale of Controlled Foreign
Corporation Stock
253
§6.7
Recapture of Overall Domestic Loss under Section 904(g), as
Amended by the American Jobs Creation Act of
2004 255
CONTENTS
Recharacterize Overall
Domestic
Loss
255
§ 6.8
Allocation of U.S. Losses for Foreign Tax Credit Purposes
257
A. Legislative Background
257
General Explanation of Tax Reform Act of
1986 257
B. Policy Perspective
258
Treasury Department Study, International Tax Reform: An Interim
Report
26-28 258
§ 6.9
Allocation of Interest and Other Expenses for Foreign Tax Credit
Purposes
259
A. Legislative Background: The
1986
Act
259
General Explanation of the Tax Reform Act of
1986 259
B. Election to Allocate Interest on a Worldwide Basis under Section
864(f
)
as Amended by the American Jobs Creation Act of
2004 262
Interest Expense Allcoation Rules
262
C. Policy Implications
265
Treasury Department Study, International Tax Reform: An Interim
Report
265
§6.10
Allocation of Research and Development Expenses for Foreign Tax
Credit Purposes
267
Treasury Department Study, International Tax Reform: An Interim
Report
267
§6.11
Treatment of Subsidies for Foreign Tax Credit Purposes
269
General Explanation of Tax Reform Act of
1986 269
§6.12
Impact of Sourcing Rules on Computation of Foreign Tax Credit
269
A. Introduction
269
B. Source of Income from Purchase and Sale of Inventory Property by
Foreign Branch of U.S. Person: The Title Passage Rule
270
1.
Introduction
270
2.
Illustration
271
Liggett Group, Inc. v. Commissioner
271
3.
Proposed Treatment of Income from Certain Sales of Inventory as
U.S. Source
(
See
§ 865 ) 273
Revenue Reconciliation Act of
1997 273
C. Source of Income from Production and Sale of Inventory by Foreign
Branch of U.S. Person
274
1.
Introduction
274
2.
Proposed Regulations on Source of Income from Sales of
Inventory Produced in One Jurisdiction and Sold in Another
275
Preamble to Proposed Regualtions INTL-0003-95
275
3.
Final and Temporary Regulations on Source of Income from Sales
on Inventory Produced in One Jurisdiction and Sold in Another
279
Preamble to Treasury Decision
8687 279
4.
Policy Implications
281
U.S. Treasury Department Study, International Tax Reform: An
Interim Report
281
D. Source of Income from Sale of Personal Property (Other than
Inventory) by Foreign Branch of U.S. Person
282
1.
Legislative Background
282
General Explanation of the Tax Reform Act of
1986 282
CONTENTS xvii
2.
Further Elaboration
284
a. General Rule
284
b. Exception for Depreciable Property
284
с
Intangible Property
285
d. Stock in Foreign Affiliates
286
e. Exception for Dispositions through Foreign Office
286
f. Regulations
286
g. Study of Title Passage Rule
286
3.
Summary Problems on Source of Income from Sale of Property
by Foreign Branch of U.S. Person
287
E. Sourcing Rules for Export Financing by a U.S. Bank
287
Bank of America v. United States
287
§ 6.13
Foreign Currency Gains and Losses of Foreign Branches of U.S.
Persons and of Direct Foreign Transactions of U.S. Persons
292
A. Introduction
292
B. Legislative Background
292
General Explanation of the Tax Reform Act of
1986 292
C. General Principles
—
Foreign Currency Transactions
294
D. Actively Traded Currency Contracts
295
E. Determination of Functional Currency
295
1.
Legislative Background
295
General Explanation of the Tax Reform Act of
1986 295
2.
Further Elaboration
295
F. Translation of Earnings of Foreign Branch
296
1.
Legislative Background
296
General Explanation of the Tax Reform Act of
1986 296
2.
Further Elaboration
297
§6.14
Denial of Foreign Tax Credits and Other Benefits for U.S. Taxpayers
Who Participate in or Cooperate with an International Boycott
298
General Explanation of the Tax Reform Act of
1976 298
§6.15
Denial of Dual Consolidated Losses of a Domestic Corporation That
is Treated as a Resident of a Foreign Country
299
General Explanation of the Tax Reform Act of
1976 299
§6.16
Policy Issue: Should the U.S. Adopt a "Tax Sparing" Policy for
Developing Countries
302
Thompson, The Case for Tax Sparing along with Expanding and
Limiting the
Subpart F
Regime
302
§6.17
South African Taxation of a U.S. Branch of a South African
Corporation
303
Chapter
7
Organization of Foreign Corporations and Foreign Partnerships
305
§7.1
Scope
305
§ 7.2
Introduction to the Purpose and Effect of Section
367 306
§ 7.3
Legislative Background on Section
367 306
General Explanation of the Tax Reform Act of
1984 306
§ 7.4
Transfer of Property from U.S. to Foreign Corporations in Section
351
Outbound Transaction: General Rules
310
§ 7.5
Outbound Transfers of Property for Use in Trade or Business
312
A. Legislative Background
312
xviii CONTENTS
General
Explanation of Tax Reform Act of
1984 312
B. Further Elaboration
312
§ 7.6
Outbound Transfers of Intangibles in a Section
351
Transaction
314
A. Legislative Background
314
General Explanation of the Tax Reform Act of
1986 314
B. Amendment to Section 367(d) by the American Jobs Creation Act
of
2004 318
Foreign Tax Credit Treatment of Deemed Payments under Section
367(d)oftheCode
318
С
Further Elaboration
319
§ 7.7
Outbound Transfer of Foreign Branch with Previously Deducted Losses
321
A. Legislative Background
321
General Explanation of the Tax Reform Act of
1984 321
B. Further Elaboration
322
§ 7.8
Outbound Transfers of Stock or Securities
323
A. Legislative Background
323
General Explanation of Tax Reform Act of
1984 323
B. Further Elaboration
324
§ 7.9
Reporting Requirements for Foreign Corporations Generally
324
§ 7.10
Summary Problems on Outbound Transfers to Foreign Corporations
325
§7.11
Simplification of Formation and Operating of International Joint
Ventures: Impact of Taxpayer Relief Act of
1997 325
A. Senate Report
325
Revenue Reconciliation Act of
1997,
Senate Finance Committee
Report No.
105-33 325
B. Conference Report
327
Statement of Managers on Taxpayer Relief Act of
1997
(HR
2014)
Conference Report
327
С
Section
721
(a) and (c)
328
§7.12
South African Taxation on Formation and Operation of a U.S.
Subsidiary Wholly-Owned by a South African Parent Corporation
328
Chapter
8
Treatment of Actual and Imputed Dividends to U.S. Corporate
Shareholders of Foreign Corporations: The Indirect Foreign Tax
Credit, Look-Through Rules, Resourcing Rules, and Foreign
Currency Rules
331
§8.1
Scope
331
§ 8.2
Introduction
332
§ 8.3
The Indirect Foreign Tax Credit
332
A. Legislative Background
332
General Explanation of the Tax Reform Act of
1986 332
B. Simplification of General Provisions Affecting the Indirect Credit:
Impact of Taxpayer Relief Act of
1997 335
Senate Finance Committee Report No.
105-33 335
C. Amendment to Section
902
by the American Jobs Creation Act of
2004 336
Attribution of Stock Ownership through Partnerships in Determining
Section
902
and
960
Credits House Committee Report
336
D. Further Elaboration
336
CONTENTS xix
E. Use
of Check-the-Box Rules Where Section
902
Is Not Available
338
F. Policy Perspective
338
Treasury Department Study, International Tax Reform: An Interim
Report
338
§8.4
Separate Basket Treatment under the Foreign Tax Credit for Dividends
from Foreign Corporations
339
A. Look-Through Rules for Dividends from Noncontrolled Section
902
Corporations
339
1.
Legislative History
339
Apply Look-Through Rules for Dividends from Noncontrolled Section
902
Corporations
339
2.
Further Elaboration
340
B. The Look-through Rules Relating to Controlled Foreign Corporations
340
§ 8.5
Summary Problems on Indirect Credit and Baskets
341
§8.6
Foreign Tax Credit Resourcing Rules for Payments From U.S. Owned
Foreign Corporations
342
§8.7
Foreign Exchange Implications for Foreign Corporations
343
A. Determination of Earnings and Profits of Foreign Corporations
343
B. Amount of Deemed Paid Taxes under Sections
902, 960
and 1293(f
) 345
§ 8.8
South African Taxation of Dividends Paid by a U.S. Sub to its South
African Parent
345
Chapter
9
Section
482:
Transactions between Commonly Controlled
Corporations
349
§9.1
Scope
349
§ 9.2
Scope and Purpose of
§ 482 350
§9.3
Procedures under
§482
and Valuation Misstatement Penalty
350
A. Introduction
350
B. Valuation Misstatement Penalty
351
C. Advance Pricing Agreements
35
1
1.
Introduction
351
Advance Pricing Agreements, Revenue Procedure
2004-40 351
2.
APA
Provisions of Taxpayer Relief Extension Act of
1999 352
Conference Taxpayer Relief Extention Act of
1999 352
§ 9.4
The
1986
Amendments to
§ 482:
The "Super Royalty" Provision
353
§9.5
Regulations Relating to Transfers of Tangible and Intangible Property
355
A. Background: Preamble to the
1994
Final Regulations
355
Treasury Decision
8552 355
B. Purpose and Scope: Arm's Length, Best Method and Comparability:
Preamble to Final Reg.
§ 1.482-1 358
Treasury Decision
8552 358
С
Rules Governing the Transfer of Tangible Property: Preamble to
Final Reg.
§1.482-3 362
Treasury Decision
8552 362
D. Rules Governing the Transfer of Intangible Property: Reg.
§ 1.482-4 365
1.
Preamble to the
1994
Final Regulations
365
Treasury Decision
8552 365
2.
Preamble to
2003
Proposed Regulations
368
Preamble to Reg-
146893-02 368
xx CONTENTS
E.
Rules Governing the Comparable Profit Method: Preamble to Final
Reg.
§1.482-5 371
Treasury Decision
8552 371
F. Rules Governing Profit Split Method: Preamble to Final Reg.
§1.482-6 374
Preamble to Treasury Decision
8552 374
G.
1RS
Section
482
Settlement with GlaxoSmithKline
376
1RS
News Release (IR-2006-142) on IRS-GlaxoSmithKline Transfer
Pricing Settlement
376
§9.6
Introduction to Cost Sharing Agreements under Reg.
§ 1.482-7 377
Preamble to Treasury Decision
9088 377
§9.7
Treatment of Services under the
2006
Temporary Regulations
378
Temporary Rules on Services Treatment and Stewardship Expenses
under Section
482,
Treasury Decision
9278 378
§9.8
Treatment of Loans and Advances
385
§ 9.9
Use of Tangible Property
386
§9.10
Global Trading: Allocation and Sourcing of Income and Deductions
386
Preamble to Proposed Regulation Reg-208297-90
386
§9.11
Technical Explanation of Associated Enterprises Article of Model
Treaty
388
1996
U.S. Mode] Treaty, Technical Explanation of Associated
Enterprises, Article
9 388
§9.12
South African Approach to Taxing Related Party Transactions
—
Transactions between U.S. Parent and South African Sub
389
Chapter
10
Controlled Foreign Corporations
393
§10.1
Scope
393
§ 10.2
Legislative Background
394
General Explanation of the Tax Reform Act of
1986 394
§ 10.3
Interrelationship between Imputation Provisions Governing Foreign
Corporations
396
A. Introduction
396
B. Impact of the Jobs Creation Act of
2004 397
Repeal of Foreign Personal Holding Company Rules
and Foreign Investment Company Rules
397
§ 10.4
Definition of Controlled Foreign Corporation
398
A. Legislative Background
398
General Explanation of the Tax Reform Act of
1986 398
B. Further Elaboration
399
§ 10.5
Determination of Direct and Indirect Stock Ownership under the
Controlled Foreign Corporation Provisions
400
§ 10.6
Imputation of Earnings of Controlled Foreign Corporations
401
A. In General
401
B. Types of Income Imputed and Determination of Pro
Rata
Shares
401
С
Coordination with Passive Foreign Investment Company Provisions
403
§ 10.7
Subpart F
Income
403
A. In General
403
B. Foreign Base Company Income
404
I. In General
404
CONTENTS xxi
2. The De
Minimis
Rule and
70%
Rule
404
3.
Exception for High Taxed Income
405
4.
Treatment of Deductions
405
C. Foreign Personal Holding Company Income
405
1.
In General
405
2.
Exception from Foreign Personal Holding Company Income under
Subpart F
for Active Financing Income: Impact of Taxpayer Relief
Act of
1997 406
Revenue Reconciliation Act of
1997 406
Note on Impact of TIPRA
(2006)
on Active Banking and Financing
Exception
407
3.
Use of Check-the-Box Regulations to Avoid FPHCI on Sale of
Stock of a CFC
—
Check and Sell in Dover
407
Dover Corporation v. Commissioner
407
4.
The TIPRA
2006
Rules on Look-Through Payments
413
Tax Increase Prevention and Reconciliation Act of
2005
("TIPRA"),
Act Sec. 103(b). Look-Through Treatment of Payments between
Related Controlled Foreign Corporations under Foreign Personal
Holding Company Income Rules
413
D. Foreign Base Company Sales Income
414
1.
In General
414
2.
Foreign Sub Engages in "Manufacturing" to Avoid Foreign Base
Company Sales Income
416
Dave Fischbein
Manufacturing Co. v. Commissioner
416
3.
Use of Partnership to Avoid Foreign Base Company Sales
Income
—
The Treasury's Reaction to Brown Group
419
Notice of Proposed Rule Making Reg-1
12502-00 419
E. Foreign Base Company Services Income
421
§ 10.8
Investment of Earnings in United States Property
421
A. Introduction
421
B. Temporary Repayment of Loan
422
Revenue Ruling
89-73 422
§ 10.9
Adjustments in Basis of Stock for Amount of Imputed Income and
Exclusion for Distribution of Previously Taxed Earnings and Profits
424
A. Introduction
424
B. Impact of Taxpayer Relief Act of
1997
on Sales of Lower Tier CFCs
and Certain Section
1248
Sales
424
Senate Finance Committee Report
424
§ 10.10
Indirect Foreign Tax Credit
426
§ 10.11
Miscellaneous Provisions
426
§ 10.12
Use of Hybrid Entities to Reduce Foreign Tax on CFCs
427
A.
1RS
Initial Notice on Treatment of Hybrid Arrangements under
Subpart F
427
Notice
98-11 427
B.
Temporary Regulations
428
Preamble to Treasury Decision
8767 428
С
Announcement of Withdrawal of Temporary Regulations
429
Notice
98-35 429
xxii
CONTENTS
D.
Joint
Committee Recommendation to Modify the Check-the-Box
Rules
430
Staff of Joint Committee on Taxation, Options to Improve Tax
Compliance and Reform Tax Expenditures
430
§ 10.13
Incentive to Reinvest Foreign Earnings in the U.S.: Section
965 430
Incentives to Reinvest Foreign Earnings in the United States
430
§ 10.14
Summary Problems on Controlled Foreign Corporations
431
§ 10.15
Stapled Entities and Dual Listed Company Structures
432
Preamble from Treasury Decision
9216 432
§ 10.16
Treatment of Dual Chartered Companies
433
Treasury Department News Release JS-1854
433
§ 10.17
Policy Perspective on Controlled Foreign Corporations
434
A. Treasury's
Subpart F
Study: Impact Generally and on E-commerce
434
The Deferral of Income Earned through U.S. Controlled Foreign
Corporations
434
B. Recommendation of the President's
2005
Tax Advisory Panel for
Adoption of a Territorial Regime
443
President Bush's
2005
Tax Advisory Tax Panel
443
С
A Proposal to Expand the Foreign Base Company Sales Income
Provisions
447
Thompson, A Critical Perspective on the Thomas Bill
447
D.
2006
House Testimony Supporting Pass-Through Taxation of Foreign
Income
448
Stephen Shay Testifies at W&M Panel Hearing on U.S. International
Competitiveness
449
Graetz Testifies at W&M Panel Hearing on U.S. International
Competitiveness
451
§ 10.18
South African Taxation of South African Controlled Foreign
Companies
452
A. Introduction
452
B. Basic Imputation Rules
452
C. Exceptions to the Basic Imputation Rule
453
Chapter
11
Passive Foreign Investment Companies
455
§11.1
Scope
455
§ 11.2
Introduction
455
§ 11.3
Legislative Background of PFICs
456
General Explanation of the Tax Reform Act of
1986 456
§ 11.4
Definition of PFIC
458
A. Legislative Background
458
General Explanation of the Tax Reform Act of
1986 458
B. Further Elaboration on the Definition of a PFIC
459
С
Illustration of the Breadth of the PFIC Definition: Foreign
Manufacturing Corporation Treated as a PFIC
460
Revenue Ruling
87-90 460
§ 11.5
Tax and "Interest Charge" on Deferred Income
461
A. Introduction
461
B. Deferred Tax Amount
462
§ 11.6
Qualified Electing Funds
462
CONTENTS xxiii
Α.
Legislative
Background
462
General
Explanation of the Tax Reform Act of
1986 462
Б.
Definition of Qualified Electing Funds
463
§11.7
The "Mark-to-Market" Election: Impact of Taxpayer Relief Act of
1997 463
Revenue Reconciliation Act of
1997 463
§11.8
Attribution and
Anti-
Avoidance Rules
464
§11.9
Summary Problems on the PFICs
465
Chapter
12
Introduction to Domestic and Foreign Taxable and Tax-Free
Mergers and Acquisitions
467
§ 12.1
Scope
467
§ 12.2
Overview of Taxable and Tax-Free Acquisition
467
A. In General
467
B. Foreign Acquiring Corporations
468
§ 12.3
Summary of Taxable Acquisitions and LBOs
468
A. Taxable Asset Acquisition
468
1.
In General
468
2.
Foreign Acquiring Corporations
469
B. Taxable Stock Acquisitions
469
1.
In General
469
2.
Foreign Acquiring Corporations
469
§ 12.4
Treatment of Target's Shareholders in a Taxable Acquisition
470
A. In General
470
B. Foreign Acquiring Corporation
470
§ 12.5
Treatment of a Target Corporation in a Taxable Acquisition
470
A. Stand-Alone (Nonsubsidiary)
Target Corporation
470
1.
In General
470
2.
Foreign Acquiring Corporation
471
B. Taxable Reverse and Forward Subsidiary (Triangular) Mergers
471
1.
Taxable Reverse Subsidiary Mergers
471
a. In General
471
b. Foreign Acquiring Corporations
473
2.
Taxable Forward Subsidiary Mergers
473
a. In General
473
b. Foreign Acquiring Corporations
474
C. Acquisition of a Target That Is a Subsidiary
474
1.
In General
474
2.
Foreign Acquiring Corporations
474
D. Summary of Treatment of Target Corporation
475
§ 12.6
Treatment of Acquirer in a Taxable Acquisition
475
A. In General
475
B. Foreign Acquiring Corporations
475
§ 12.7
Treatment of LBOs
476
A. In General
476
B. Foreign Acquiring Corporations
476
§ 12.8
Summary of Acquisitive Reorganizations
477
§ 12.9
Asset Reorganizations
477
A. The Direct Merger under §368{a)(l)(A)
477
xxiv CONTENTS
1. In General 477
2.
Foreign Acquiring
Corporation 479
В.
Forward Subsidiary Merger under Section 368(a)(2)(D)
479
1.
In General
479
2.
Foreign Acquiring Corporation
480
С
Direct Stock for Asset Reorganization under Section 368(a)(
1
)(C)
481
1.
In General
481
2.
Foreign Acquiring Corporation
482
D. Triangular Stock for Asset Reorganization under Section 368(a)(
1
)(C)
482
1.
In General
482
2.
Foreign Acquiring Corporation
483
E. Nondivisive (D)
Reorganization under Sections 368(a)(l)(D) AND
354(b)
483
1.
In General
483
2.
Foreign Acquiring Corporation
484
F. Summary of Asset Reorganizations
484
§ 12.10
Stock Reorganizations and Acquisitive Section
351
Transactions
484
A. Reverse Subsidiary Merger under §368(a)(2)(E)
484
1.
In General
484
2.
Foreign Acquiring Corporation
485
B. Stock for Stock Reorganization under Section 368(a)(
1
)(B)
486
1.
In General
486
2.
Foreign Acquiring Corporation
486
С
Triangular (B) Reorganization under Section 368(a)( 1)(B)
487
D. The Acquisitive Section
351
Transaction and the Horizontal Double
Dummy
487
1.
In General
487
2.
Foreign Holding Company
489
E. Summary of Stock Reorganizations and Acquisitive Section
351
Transaction
489
§ 12.11
Over and Down Reorganizations under Section 368(a)(2)(C)
489
§ 12.12
Summary of Treatment of Parties to an Acquisitive Reorganization
489
A. In General
489
B. Foreign Acquiring Corporations
490
§ 12.13
The
Non-
Acquisitive Reorganizations
490
A. The Divisive (D) Reorganization: Spin-Offs
490
1.
Introduction
490
2.
The Divisive (D): Spin-Offs, Split-Offs and Split-Ups
490
B. The
(
E) Recapitalization
492
С
The (F) Mere Change in Form
492
§ 12.14
Introductory Problems on Reorganizations and Taxable Acquisitions
492
§ 12.15
South African Taxation of
Cross-Border
Mergers and Acquisitions
493
Chapter
13
Taxable Sale or Liquidation of Foreign Controlled U.S.
Corporations
495
§13.1
Scope
495
§ 13.2
Sale of Stock of Foreign Controlled Domestic Corporations
495
§ 13.3
Liquidation of Corporation: General Principles
496
A. Treatment of Shareholders in a
§331
Liquidation: General Principles
496
CONTENTS xxv
B.
Treatment of Corporation in a
§ 331
Liquidation: General Principles
496
C. Treatment of Parent Corporation on Liquidation of Controlled
Subsidiary: General Principles
497
D. Treatment of Controlled Subsidiary upon Liquidation into Corporate
Parent
497
§ 13.4
Liquidating Distributions by Domestic Corporations to
Noncontrolling Foreign Shareholders
497
§ 13.5
Liquidation of Domestic Subsidiary into Foreign Parent: Impact of
Section
367 498
A. Introduction
498
B. Regulations under Section 367(e)(2)
499
1.
The
1990
Temporary Regulations on Outbound
§332
Liquidations
499
Preamble to Treasury Decision
8280 499
2.
The
1999
Final Regulations on Outbound
§332
Liquidations
500
Preamble to Treasury Decision
8834 500
§ 13.6
Summary Problems on Sales and Liquidations
502
§ 13.7
Policy Perspective on Taxation of Capital Gains from Sale by Foreign
Person of Stock of a Domestic Corporation
503
Joint Committee Explanation of Foreign Income Tax Rationalization
Simplification Bill of
1992 503
Chapter
14
Taxable Sale and Acquisition of a Foreign Corporation: Impact of
Sections
1248
and
338 505
§14.1
Scope
505
§ 14.2
Introduction to the Impact of Section
1248
on the Sale of Stock of
a CFC
505
A. Purpose and Effect of Section
1248 505
B. Indirect Credit for Corporations
506
С
Earnings and Profits
—
Determination
507
D. Special Rules Not Covered
507
E. Summary Problem
507
§ 14.3
Introduction to the Impact of Section
338
on the Taxable Acquisition
of the Stock of a Foreign Target
508
A. Introduction
508
B. Evolution of Consistency Regulations under Section
338 509
1. 1992
Proposed Consistency Regulations in the Domestic Context
509
Preamble to Proposed Regulations
509
2.
Operation of the Final Consistency Regulations in the Domestic
Context
510
3. 1992
Proposed Consistency Regulations in the International
Context
511
Preamble to Proposed Regulations
511
4. 1994
Consistency Regulations under Section
338
Relating to
Controlled Foreign Corporations
512
Preamble to Treasury Decision
8516 512
5. 1997
Final Consistency Regulations under Section
338
Relating
to Controlled Foreign Corporations
512
Preamble to Treasury Decision
8710 512
xxvi CONTENTS
6. Illustration
of the
Final
Consistency Rule in the International
Context
513
С
Operation of Section
1248
in the Section
338
Context
514
1.
The Original
1986
Temporary Regulations Dealing with Sections
1248
and
338 514
Preamble to Treasury Decision
8074 514
2.
The
1992
Proposed Regulations Dealing with Sections
1248
and
338 517
Preamble to Proposed Regulations
(
CO-
111 -90 ) 517
3.
The
1994
Final Regulations on Sections
1248
and
338 518
Preamble to Treasury Decision
8515 518
4.
Excerpts from the Final Regulations on International Aspects of
Section
338, §1.338-9 519
§ 14.4
Taxable Acquisition by U.S. Acquirer of the Stock or Assets of a
Foreign Owned Foreign Corporation
522
A. Introduction
522
B. Taxable Sale and Acquisition of the Stock of a Foreign Owned
Foreign Target
522
C. Taxable Sale and Acquisition of the Assets of a Foreign Owned
Foreign Target
523
§ 14.5
Taxable Acquisition by U.S. Acquiror of Stock or Assets of a
CFC Target
523
A. Introduction
523
B. Taxable Sale and Acquisition of the Assets of a CFC Target
523
C. Taxable Sale and Acquisition of the Stock of a CFC Target
524
Chapter
15
Cross Border Acquisitive Reorganizations and Spin-Offs
527
§15.1
Scope
527
§ 15.2
Impact of Section
367
on Acquisitive Reorganizations
528
A. Introduction
528
B. Introduction to the
2006
Final Regulations Permitting a Merger
Involving a Foreign Corporation to Qualify as an "A" Reorganization
529
1.
Preamble to the
2006
Final Regulations Relating to the Definition
of the "A" Reorganization
529
Preamble to Final Regulations on Statutory Mergers and
Consolidations, Treasury Decision
9242 529
2.
Excerpts from the
2006
Final Regulations; Basic Principles,
Merger into a Disregarded Entity, and Foreign Mergers and
Amalgamations
532
3.
Overlap between (A) and (C)
534
4.
Introduction to the Section
367
Regulations Responding to the
Change in the Definition of the (A)
534
Preamble to the
2006
Final
367
Regulations, Treasury Decision
9243 534
§ 15.3
Elaboration on Impact of Section
367
on Acquisitive Reorganizations,
Section
351
Transactions and Spin-Offs
535
A. In General
535
B. Purpose of Section
367
and Controlled Foreign Corporation and
Related Provisions
535
1.
Section
367 535
2.
Controlled Foreign Corporation and Related Provisions
537
CONTENTS
xxvu
С.
Elaboration on Structure
of
Section
367
as Applicable
to Acquisitive
Reorganizations and Acquisitive Section
351
Transactions
538
1.
Section 367(a)(l) Gain Recognition Rule for Outbound
Transfers
538
2.
Section 367(a)(6) Exceptions to Gain Recognition Rule for
Outbound Transactions Described in Regulations
538
3.
Section 367(a)(2) Exception to Gain Recognition Rule for Transfer
of Stock or Security of Foreign Corporations
538
4.
Section 367(a)(3) Exception to Gain Recognition Rule for Certain
Outbound Incorporations
539
5.
Section 367(a)(5) Exception to the Section 367(a)(2) and
(3)
Exceptions
539
6.
Section 367(b) Rules for Nonoutbound Transfers
539
§ 15.4
Forms of Outbound, Inbound, and Foreign-to-Foreign Acquisitive
Reorganization Transactions Involving U.S. Shareholders
540
A. Applicability of Section
367
to Outbound Reorganizations and
Certain Foreign-to-Foreign Reorganizations
540
B. Direct Outbound Transfers of Stock or Assets
540
C. Indirect Outbound Transfers of Stock of a Domestic Target
541
D. Inbound Acquisitions of Stock or Assets
541
E. Foreign-to-Foreign Transfers of Stock or Assets
541
F. Summary of Outbound and Foreign-to-Foreign Acquisitive
Reorganizations and Section
351
Acquisitive Transactions Governed
by Section
367 542
G. Interface between Section
304
and Section
367 543
Preamble to Final Regulations: Application of Section
367
in Cross
Border Section
304
Transactions; Certain Transfers of Stock
Involving Foreign Corporations
543
§ 15.5 2004
Anti-
Inversion Legislation, Section
7874 545
A. Introduction to Inversions Generally
545
B. Background on the Inversion Problem
545
Excerpt from Thompson, Treasury's Inversion Study Misses the Mark:
Congress Should Shut Down Inversions Immediately
545
C. Approach to Inversions Suggested by Senators Grassley and Baucus
546
Excerpt from Thompson, Analysis of the "Non-Wimpy" Grassley/
Baucus Inversion Bill
546
D. Analysis of the May
2002
Treasury Inversion Study
549
Excerpt from Thompson, Treasury's Inversion Study Misses the Mark:
Congress Should Shut Down Inversions Immediately
549
E. Anti-Inversion Provision Enacted by the American Jobs Creation
Act of
2004,
Section
7874 552
Conference Committee Report to the American Jobs Creation Act of
2004 552
F. The First Set of Regulations under the Anti-Inversion Provision,
Section
7874:
Hook Stock and Intergroup Transfers
554
Preamble to Treasury Decision
9238 554
G. Proposed Changes to Section
7874,
Senate Summary of Tax Relief
Act of
2005 558
xxviii CONTENTS
Senate
Staff Summary,
Memorandum,
From: Finance Committee
Tax Staff
558
§ 15.6
The Outbound Regulations under Section
367
Relating to Transfers
of Stock of Domestic Corporations
559
A. Notice of Modifications to Regulations for Certain Tax Avoidance
Transactions
559
1RS
Notice
94-46 559
B. The Final Section
367
Inversion Regulations Relating to Direct
Transfers of Stock of U.S. Targets
560
Preamble to Treasury Decision
8702 560
C. Final Section
367
Inversion Regulations Regarding Indirect Transfers
of Stock of Domestic Targets in Triangular Reorganizations
565
Preamble to Treasury Decision
8770 565
D. Applicability of Section
367
Inversion Regulations to an Exchange of
Securities
566
Preamble to Final Section 367(a) Regulations Relating to Treatment of
Outbound Asset Reorganizations, Treasury Decision
9243 566
E. Applicability of Section
367
Inversion Regulations to Acquisition of
Domestic Target by Foreign Sub of Domestic Acquiror
567
Preamble to Final Section 367(a) Regulations Relating to Treatment
of Outbound Asset Reorganizations, Treasury Decision
9243 567
F. Proposed Amendments to Gain Recognition Agreement Provisions
567
Proposed New Rules on Gain Recognition Agreements and Common
Asset Reorganizations
567
§ 15.7
Impact of Sections
367
and
7874
on Direct Outbound Transfer of
Stock of Domestic Target to a Foreign Acquiror in a (B) Reorganization
or in an Acquisitive Section
351
Transaction
569
A. General Principles under Section
367 569
B. General Principles under Section
7874 574
C. Summary of U.S. Tax Results under Section
367
Regulations and
Section
7874 575
D. The
DaimlerChrysler
Acquisition of Chrysler as a (B) Reorganization
or an Acquisitive Section
351
Transaction
576
E. Critique of General Principles
577
§ 15.8
Impact of Sections
367
and
7874
on Indirect Outbound Stock
Transactions: Reorganizations Involving the Acquisition of Stock of a
Domestic Target by a Foreign Acquiror in a Triangular Reorganization
Involving a Subsidiary of the Foreign Acquiror
578
A. General Principles
578
1.
Introduction
578
2.
Indirect Outbound Forward Subsidiary Merger of U.S. Target into
U.S. Sub of Foreign Acquiror: The Aborted British Telcom-MCI
Merger
578
3.
Indirect Outbound Reverse Subsidiary Merger: The Vodafone-
AirTouch Merger
580
4.
Indirect Outbound Triangular (B) Reorganization
581
5.
Indirect Outbound Triangular (C) Reorganization
582
6.
Economic Effect of Indirect Outbound Triangular Reorganizations
and Impact of Sections
367
and
7874 582
CONTENTS xxix
В.
Critique
of
General
Principles
583
§ 15.9
Impact of Section
367
and Section
7874
on Outbound Transfer of
Domestic Target's Assets to Foreign Acquiror in an Outbound Asset
Reorganization
584
A. Scope of Transactions
584
B. General Principles under Section
367 584
1.
Treatment
of U.S. Target
584
2.
Treatment of Shareholders of U.S. Target
585
C. Prototype Direct Outbound Asset Reorganization
587
1.
The Transaction
587
2.
General Principles under Section
7874 587
3.
Summary Tax Results under Sections
367
and
7874 588
4.
Change in Results for Triangular Outbound Asset Reorganization
588
D. Critique of General Principles
588
§ 15.10
Proposed Liberalization and Tightening of Section
367
Inversion
Regulations in View of the Enactment of Section
7874 589
Excerpt from Thompson, Section
367:
A "Wimp" for Inversions and a
"Bully" for Real Cross Border Acquisitions
589
§ 15.11
Summary Problems on Outbound Acquisitive Reorganizations
under Section
367 592
§15.12
Introduction to Section 367(b)
593
§ 15.13
Legislative Background to Section 367(b)
594
General Explanation of the Tax Reform Act of
1976 594
§ 15.14
General Principles Underlying the Regulations under Section 367(b)
595
A. The
1991
Proposed Regulations under Section 367(b)
595
Preamble to Notice of Proposed Rulemaking
595
B. The
2000
Final Regulations under Section 367(b)
596
Preamble to Treasury Decision
8862 596
§ 15.15
Scope of Regulations:
§
i.367(b)-l
597
A. The
1991
Proposed Regulations under
§
1.367(b)-l
597
Preamble to Notice of Proposed Rulemaking
597
B. The
2000
Final Regulations Under
§
1.367(b)-
1 597
Preamble to Treasury Decision
8862 597
§ 15.16
Definitions and Special Rules under the Regulations:
§
1.367(b)-2
598
A. The
1991
Proposed Regulations under
§
1.367(b)-2
598
Preamble to Notice of Proposed Rulemaking
598
B. Further Elaboration on §1.367(b)-2
598
C. The
2000
Final Regulation, §1.367{b)-2
598
Preamble to Treasury Decision
8862 598
§ 15.17
Inbound Asset Acquisitions: Acquisition by a Domestic Acquiring
Corporation of the Assets of a Foreign Target:
§ 1
.367(b)-3
600
A. Introduction
600
B. The
1991
Proposed Regulations under
§
1.367(b)-3
600
Preamble to Notice of Proposed Rulemaking
600
С
The
2000
Final Regulations under
§ 1
.367(b)-3
601
Preamble to Treasury Decision
8862 601
D. Illustration: Acquisition by U.S. Acquiror or Its U.S. Sub of Assets of
Foreign Target in an inbound (C) Reorganization
603
E. Summary Tax Results
605
CONTENTS
F.
Critique
of
General
Principles
606
G.
Reorganizations and the Foreign Real Property Tax Act (FIRPTA)
606
Announcement of Rules to be Included in Final Regulations under
Sections 897(d) and (e) of the Code
606
§ 15.18
Inbound Stock Acquisitions: Acquisition by a Domestic Acquiring
Corporation of the Stock of Foreign Target
608
A. Final
1998
Section
367
Regulations
608
Preamble to Treasury Decision
8770 608
B. Elaboration
609
С
Illustration
609
D. Summary Tax Results
610
E. Critique of General Principles
610
§ 15.19
Foreign-to-Foreign Stock and Asset Reorganizations: Acquisition by
Foreign Acquiring Corporation of Stock or Assets of a Foreign Target
611
A. Introduction
611
B. Acquisitions by Foreign Acquiring Corporation of Stock of Foreign
Target from U.S. Shareholders: Impact of Section 367(a)
612
Preamble to Treasury Decision
8770 612
С
Concurrent Application of Section 367(a) and
(b)
Regulations
615
1. 2005
Proposed Regulations on Concurrent Application
615
Preambles to Proposed Regulations and Proposed Amendments of
Regulations
615
2. 2006
Final Regulations on Concurrent Application
616
Preamble to Final Section 367(a) Regulations Relating to Treatment of
Outbound Asset Reorganizations, Treasury Decision
9243 616
D. Foreign-to-Foreign Stock and Asset Reorganizations: Impact of Reg.
§1.367(b)-4
617
1.
Introduction
617
2.
The Proposed Regulations under
§ 1
.367(b)-4
617
Preamble to Notice of Proposed Rulemaking
617
3.
The
2000
Final Regulations under §1.367(b)-4
618
Preamble to Treasury Decision
8862 618
E. Illustration of Concurrent Application of Sections 367(a) and (b) in
Foreign-to-Foreign Stock and Asset Reorganizations: The Daimler-
Chrysler Transactions
620
1.
Introduction
620
2.
Impact of Section 367(b)
620
3.
Potential Impact of Section 367(a)
621
4.
Illustration of the Concurrent Application of the Rules of Section
367(a) and (b)
621
5.
Summary Tax Results
622
6.
Impact of Rules under Section 367(b) and Section 367(a) on
DaimlerChryler's Acquisition of Daimler-Benz
623
F. The Serivce's Position on Killer "B"s
624
1.
Treasury News Release on Triangular Reorganizations Involving
Foreign Corporations
624
Treasury and
1RS
Announce Regulations to be Issued with Respect to
Certain Triangular Reorganizations under Section 368(a)
Involving Foreign Corporations
624
CONTENTS xxxi
2. 1RS
Notice on
Killer "B^ 624
Treatment under Section 367(b) of Property Used to Purchase Parent
Stock in Certain Triangular Reorganizations
624
§ 15.20 2006
Final Regulations on Carryover of Earnings and Profits in
Section 367(b) Transactions
629
Final Regulations: Carryover Rules for Section 367(b) Transactions
Involving Foreign Corporations
629
§ 15.21
Special Rules in Determining Basis and Holding Period in a Section
367(b) Transaction, §1.367(b)-
13 631
A.
2005
Proposed Basis Regulations,
§ 1
.367(b)-
13 631
Preambles to Proposed Regulations and Proposed Amendments to
Regulations
631
B.
2006
Final Basis Regulations, §1.367(b)-13
633
Preamble to Final Section 367(a) Regulations Relating to Treatment of
Outbound Asset Reorganizations, Treasury Decision
9243 633
§ 15.22
Summary Problems on Outbound and Foreign to Foreign Acquisitive
Reorganizations
634
§ 15.23
Section
355
Spin-Offs by Domestic Corporations of Domestic Sub
to Foreign Shareholders
635
A. In General
635
B. Spin-Off by Domestic Distributing Corporation to Foreign
Shareholder
636
1.
Introduction
636
2.
Final Regulations on Spin-Offs under Section 367(e)(
1 ) 636
Preamble to Treasury Decision
8834 636
3.
Summary of Rules under Reg.
§
1.367(e)-
1
and Relationship to
Reg.
§
1.367(b)-5 and Section 1248(f)
638
§ 15.24
Section
355
Spin-Off
( 1 )
by Foreign Corporation, and
(2)
of Foreign
Controlled Corporation: Reg.
§
1.367(b)-5
638
A. Introduction
638
B. Proposed Regulations: Prop. Reg.
§
1.367(b)-5
638
Preamble to Notice of Proposed Rulemaking
638
С
2000
Final Regulations
639
Preamble to Treasury Decision
8862 639
§ 15.25
Impact of Sections 1248(a) and (f) on Spin-Offs by Domestic
Corporations of CFCs
641
Index of Major Concepts
643 |
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| series2 | Law casebook series |
| spelling | Thompson, Samuel C. 1943- Verfasser (DE-588)12930896X aut U.S. international tax planning and policy including cross-border mergers and acquisitions Samuel C. Thompson Durham, NC Carolina Acad. Press 2007 XXXIX, 644 S. graph. Darst. txt rdacontent n rdamedia nc rdacarrier Law casebook series Recht Steuer Aliens Taxation Law and legislation United States Conflict of laws Consolidation and merger of corporations Taxation United States Corporations, Foreign Taxation Law and legislation United States Income tax United States Foreign income Investments, Foreign Taxation Law and legislation United States Tax planning United States USA Digitalisierung UB Regensburg application/pdf http://bvbr.bib-bvb.de:8991/F?func=service&doc_library=BVB01&local_base=BVB01&doc_number=014787176&sequence=000002&line_number=0001&func_code=DB_RECORDS&service_type=MEDIA Inhaltsverzeichnis |
| spellingShingle | Thompson, Samuel C. 1943- U.S. international tax planning and policy including cross-border mergers and acquisitions Recht Steuer Aliens Taxation Law and legislation United States Conflict of laws Consolidation and merger of corporations Taxation United States Corporations, Foreign Taxation Law and legislation United States Income tax United States Foreign income Investments, Foreign Taxation Law and legislation United States Tax planning United States |
| title | U.S. international tax planning and policy including cross-border mergers and acquisitions |
| title_auth | U.S. international tax planning and policy including cross-border mergers and acquisitions |
| title_exact_search | U.S. international tax planning and policy including cross-border mergers and acquisitions |
| title_exact_search_txtP | U.S. international tax planning and policy including cross-border mergers and acquisitions |
| title_full | U.S. international tax planning and policy including cross-border mergers and acquisitions Samuel C. Thompson |
| title_fullStr | U.S. international tax planning and policy including cross-border mergers and acquisitions Samuel C. Thompson |
| title_full_unstemmed | U.S. international tax planning and policy including cross-border mergers and acquisitions Samuel C. Thompson |
| title_short | U.S. international tax planning and policy |
| title_sort | u s international tax planning and policy including cross border mergers and acquisitions |
| title_sub | including cross-border mergers and acquisitions |
| topic | Recht Steuer Aliens Taxation Law and legislation United States Conflict of laws Consolidation and merger of corporations Taxation United States Corporations, Foreign Taxation Law and legislation United States Income tax United States Foreign income Investments, Foreign Taxation Law and legislation United States Tax planning United States |
| topic_facet | Recht Steuer Aliens Taxation Law and legislation United States Conflict of laws Consolidation and merger of corporations Taxation United States Corporations, Foreign Taxation Law and legislation United States Income tax United States Foreign income Investments, Foreign Taxation Law and legislation United States Tax planning United States USA |
| url | http://bvbr.bib-bvb.de:8991/F?func=service&doc_library=BVB01&local_base=BVB01&doc_number=014787176&sequence=000002&line_number=0001&func_code=DB_RECORDS&service_type=MEDIA |
| work_keys_str_mv | AT thompsonsamuelc usinternationaltaxplanningandpolicyincludingcrossbordermergersandacquisitions |