Multijurisdictional Taxation

U.S. corporations often operate in how many countries worldwide, according to the BMW example?

140

BMW is headquartered in which country?

Germany

A territorial tax system taxes only what portion of income?

Income originating within the country’s borders

A worldwide tax system taxes which type of income?

Domestic and foreign income of resident corporations

Before the TCJA, the United States used which system?

Worldwide

Under the pre-TCJA system, U.S. tax on foreign income was deferred until:

Earnings were repatriated

The pre-TCJA system encouraged companies to:

Move headquarters abroad through inversions

Most other developed countries have which type of tax system?

Territorial

The Tax Cuts and Jobs Act (TCJA) of 2017 made major changes to:

International tax laws

The Participation Exemption under TCJA exempts what?

Foreign profits repatriated to the U.S.

To qualify for the participation exemption, a U.S. corporation must own what percentage of the foreign company?

10%

The U.S. corporation must own the foreign company for how many days to qualify for the participation exemption?

366 days

The Global Intangible Low-Taxed Income (GILTI) provision was designed to discourage what?

Profit shifting out of the United States

GILTI is calculated on earnings that exceed what return on foreign assets?

10%

Companies can deduct what percentage of GILTI from taxable income?

40%

The effective tax rate on GILTI income is approximately:

12.6%

FDII stands for:

Foreign-Derived Intangible Income

The FDII provision encourages companies to:

Keep intellectual property in the United States

The effective tax rate on each dollar of FDII is:

14%

BEAT stands for:

Base-Erosion and Anti-Abuse Tax

The BEAT tax rate is generally:

10.5%

The BEAT applies only to companies with:

$500M or more in sales

The BEAT prevents multinationals from:

Shifting income out of the U.S. tax base

The sourcing of income determines how income is:

Divided between U.S. and foreign taxation

Interest income from a U.S. corporation is usually treated as:

U.S.-source income

Interest from a U.S. corporation that earns 80% or more of its income from foreign business is treated as:

Foreign-source income

Dividends from domestic corporations are:

U.S.-source income

Dividends paid by foreign corporations are:

Generally foreign-source

Personal services income is sourced:

Where the services are performed

Rent and royalty income from tangible property is sourced where:

The property is located

Income from sale of real property is sourced based on:

The location of the property

Income shifting occurs when:

Related companies manipulate transfer prices

The “Double Irish with a Dutch Sandwich” strategy involves:

Moving intellectual property to Ireland

A tax haven typically has:

Low or zero tax rates and secrecy laws

The Foreign Tax Credit (FTC) is designed to:

Reduce double taxation

The FTC is a:

Dollar-for-dollar reduction of U.S. income tax

The carryback period for unused foreign tax credits is:

1 year

The carryforward period for unused foreign tax credits is:

10 years

A tax treaty is a:

Bilateral agreement between countries

A tax treaty helps prevent:

Double taxation of income

Outbound taxation refers to:

U.S. taxation of foreign-source income earned by U.S. taxpayers

Inbound taxation refers to:

U.S. taxation of U.S.-source income earned by foreign taxpayers

Most U.S. income tax treaties reduce withholding tax on:

Interest and dividends

There are how many U.S. states (plus D.C.) that impose a separate income tax?

46

Most states use what as the starting point for determining taxable income?

Federal taxable income

Nexus refers to:

The physical presence required for a state to tax an entity

Typical state nexus thresholds include:

$500K sales, $50K property, $50K payroll

Apportionment divides a corporation’s income:

Among states in which it does business

Allocation assigns specific components of income:

Directly to one state

State adjustments to taxable income may include:

Depreciation and Section 179 deductions