How is the Branch Profits Tax Calculated?

How is the Branch Profits Tax Calculated?

Tax Law
By Anthony Diosdi By introducing the U.S. branch profits tax, Congress substantially reduced the desirability of a foreign corporation as the vehicle for operating a U.S. trade or business. Previously, foreign corporations often were the vehicle of choice for U.S. investments, since (as now), use of a properly established and maintained foreign corporation generally avoided U.S. estate tax issues, and dividends often could be repatriated free of U.S. withholding tax. Withholding tax on dividends from a foreign corporation applied only if earnings and profits from U.S. trade or business were greater than 50 percent of worldwide earnings and profits, and then only a proportionate amount of the dividend suffered the withholding tax. U.S. income tax treaties with intermediary countries offered the possibility of repatriation of earnings totally free of second-tier…
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The Impact of an Installment Sale and the Potential Branch Profits Tax Liability for any Foreign Corporation Doing Business in the U.S.

The Impact of an Installment Sale and the Potential Branch Profits Tax Liability for any Foreign Corporation Doing Business in the U.S.

Tax Law
By Anthony Diosdi In prior blogs, I discussed the very complex and potentially costly branch profits tax (“BPT”) provisions. Simply put, any foreign corporation that is engaged in business in the U.S. can be subject to the BPT in a particular year if the foreign corporation has effectively connected earnings and profits (“ECEP”). The potential BPT often generates an unpleasant “surprise.” This is especially the case where a foreign corporation has incurred losses in prior years and seeks to use loss carryforwards to eliminate a corporate tax liability. Generally speaking, if a domestic corporation pays a dividend to a foreign shareholder, for instance from an Asian country, a 30 percent U.S. withholding tax will be imposed and is  required to be collected at the source by the payor domestic corporation.…
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