U.S. Taxation of Multinational Transactions

A comprehensive set of flashcards covering key concepts and terms related to U.S. Taxation of Multinational Transactions.

Foreign Tax Credit

A credit for foreign income taxes paid on foreign source income that U.S. taxpayers can use to mitigate double taxation.

Residence-Based Jurisdiction

Taxation based on taxpayer's citizenship or residence, allowing countries to tax worldwide income of their residents.

Source-Based Jurisdiction

Taxation based on the geographic source of income, taxing only the income earned within a country’s boundaries.

Effective Connected Income (ECI)

Income that is effectively connected to the conduct of a trade or business in the U.S. and is subject to U.S. tax rates.

Fixed and Determinable, Annual or Periodic (FDAP) Income

U.S. source passive income that is subject to withholding tax on gross income.

Tax Treaties

Bilateral agreements between countries that aim to reduce or eliminate double taxation on income.

Permanent Establishment (PE)

A fixed place of business such as a warehouse or office through which a foreign business's operations are conducted.

Subpart F Income

Income categories defined under U.S. tax law for Controlled Foreign Corporations that are taxed on a current basis.

Global Intangible Low-Tax Income (GILTI)

Income earned by Controlled Foreign Corporations from intangible assets that exceeds a normal rate of return.

Anti-Deferral Rules

U.S. tax rules designed to prevent taxpayers from deferring U.S. tax on income earned in low-tax countries.

Dividends-Received Deduction (DRD)

A U.S. tax deduction allowing domestic corporations to exclude a portion of dividends received from taxation.

Foreign Branch Income

Income earned by a U.S. company through an unincorporated foreign business unit that is subject to FTC limitations.

Passive Category Income

Investment-type income subject to foreign withholding taxes and treated separately for FTC purposes.

Creditable Foreign Taxes

Foreign taxes that the U.S. considers creditable against U.S. taxes owed on foreign income.

Taxable Income

Income that is subject to taxation after deductions are applied.

FTC Limitation

The cap on the foreign tax credit that can be claimed, determined as a ratio of foreign source income to total income.

Bilateral Agreement

An agreement between two countries to improve trade relations, often involving taxation.

Income Tax Treaty

An agreement between two countries that outlines how income taxes will be handled for individuals and corporations.

Restructuring Profits

The process of allocating income between jurisdictions to minimize tax liabilities.

Withholding Tax

A tax withheld from income payments, such as dividends or interest, by the country where the income is sourced.

Intangible Assets

Non-physical assets such as patents and trademarks that can generate income.

U.S. Source Rules

Rules that determine whether specific income and deductions are considered U.S. or foreign in source.

Interest Income

Income earned from lending money or from the holding of debt instruments.

Dividend Income

Income received from an investment in stocks or shares of a corporation.

Rents and Royalties

Income derived from leasing property or granting rights to use intellectual property.

Tax Deductions

Expenses that reduce the amount of income that is subject to tax.

Apportioning Deductions

Assigning expenses to the different sources of income they relate to for tax purposes.

Foreign Operations

Business activities that are conducted outside of a company's home country.

Flow-Through Entity

A business structure where income is passed directly to the owners and taxed at the individual level.

CFC (Controlled Foreign Corporation)

A foreign corporation where U.S. shareholders own more than 50% of the voting power or value of the stock.

Investment-Type Income

Income derived from investments, such as dividends, interest, and rental income.

Double Taxation

The taxation of the same income in more than one jurisdiction.

Foreign Tax Credit Baskets

Categories for computing FTC limitations, such as foreign branch income and passive category income.

401(k) Plan

A retirement savings plan sponsored by an employer that allows employees to save a portion of their paycheck.

Base Erosion and Anti-Abuse Tax (BEAT)

A minimum tax aimed at U.S. firms that shift profits out of the U.S. to avoid taxes.

Tax Cuts and Jobs Act (TCJA)

Legislation that made significant changes to the U.S. tax code, including major reforms for multinational corporations.

Passive Income

Income that is not derived from active participation in business or trade.

Hybrid Entity

A business entity that may be classified differently for tax purposes in different jurisdictions.

Hybrid Tax Treatment

Different tax implications due to the classification of an entity for U.S. and foreign purposes.

Tax Avoidance

The legal use of tax laws to reduce one’s tax burden.

Tax Efficiency

Minimizing tax liabilities through legal methods while complying with regulations.

International Tax Planning

Strategizing taxation issues when doing business in multiple countries.

Tax Compliance

Adhering to tax laws and regulations in the country of operation.

U.S. Taxation of Corporations

The tax obligation of corporations structured as domestic entities doing business globally.

Permanent Establishment Risk

The risk that a tax authority will deem a foreign operation as a permanent establishment, triggering tax consequences.

Tax Compliance Costs

Expenses incurred by businesses to comply with tax laws, including accounting and legal fees.

Transfer Pricing

Setting the price for goods and services sold between controlled entities within a multinational corporation.