Business Income Tax - Chapter 13

Commerce Clause

Article 1 of the U.S. Constitution that grants the federal government the power to regulate interstate commerce.

nexus

The degree of contact between a business and a state necessary to establish the state’s jurisdiction to tax the business.

Uniform Division of Income for Tax Purposes Act (UDITPA)

A model act describing a recommended method for apportioning a firm’s taxable income among multiple state jurisdictions.

apportionment

A method of dividing a firm’s taxable income among the various states with jurisdiction to tax the firm’s business activities.

income tax treaty

A bilateral agreement between the governments of two countries defining and limiting each country’s respective tax jurisdiction.

permanent establishment

A fixed location at which a firm carries on its regular commercial activities. For income tax treaty purposes, a country has no jurisdiction to tax a foreign business entity unless the entity maintains a permanent establishment in the country.

outbound transaction

A transaction by which a U.S. firm engages in business in a foreign jurisdiction.

foreign tax credit

A credit against U.S. tax based on foreign income tax paid or accrued during the year.

foreign source income

Taxable income attributable to a U.S. firm’s business activities carried on in a foreign jurisdiction.

excess foreign tax credit

Foreign tax paid or accrued during the year but not credited against U.S. tax because of the foreign tax credit limitation.

cross-crediting

Crediting the excess foreign tax paid in high-tax jurisdictions against the excess limitation attributable to income earned in low-tax jurisdictions.

foreign-derived intangible income (FDII)

Export income of a U.S. corporation from foreign sales and services that qualifies for a reduced effective tax rate of 13.125 percent.

withholding tax

A tax on dividends paid to foreign shareholders that is withheld by the corporation paying the dividend

deemed paid foreign tax credit

A credit available to U.S. corporations that receive dividends from a foreign subsidiary. The credit is based on foreign income tax paid by the subsidiary.

specified 10 percent foreign corporation

A foreign corporation in which any domestic corporation owns at least 10 percent.

specified foreign corporation (SFC)

A foreign corporation whose previously deferred earnings are subject to mandatory repatriation to U.S. shareholders during the last tax year beginning before January 1, 2018.

U.S. shareholder

Domestic corporations, partnerships, trusts, estates, and U.S. individuals that own 10 percent or more of a specified foreign corporation’s voting power.

mandatory inclusion

A U.S. shareholder’s share of a specified foreign corporation’s deferred foreign earnings subject to mandatory repatriation following the Tax Cuts and Jobs Act.

controlled foreign corporation (CFC)

A foreign corporation in which U.S. shareholders own more than 50 percent of the voting power or stock value.

subpart F income

A category of foreign source income earned by a CFC constructively distributed to U.S. shareholders in the year earned. Conceptually, subpart F income is artificial income in that it has no commercial or economic connection to the country in which the CFC is incorporated.

global intangible low-taxed income (GILTI)

Foreign earnings of a CFC (excluding subpart F income) in excess of 10 percent of the adjusted tax basis of the CFC’s tangible business property.

transfer price

In the international area, the price at which goods or services are exchanged between controlled corporations operating in different taxing jurisdictions.

base erosion and anti-abuse tax (BEAT)

A minimum tax on cross-border related party payments made by large multinationals.