International Taxation
International taxation covers the tax rules governing cross-border transactions, foreign income, and the interaction between U.S. tax law and foreign tax systems.
Explanation
The U.S. taxes its citizens and residents on worldwide income, with a foreign tax credit (FTC) to mitigate double taxation. The TCJA moved toward a territorial system by providing a 100% dividends received deduction for certain foreign-source dividends from 10%-or-more-owned foreign corporations (Section 245A). However, anti-deferral regimes like GILTI, Subpart F, and PFIC rules ensure current U.S. taxation of certain foreign earnings. Transfer pricing rules (Section 482) require arm's length pricing for related-party transactions across borders.
Key Points
- •Foreign tax credit prevents double taxation of foreign-source income
- •Section 245A: 100% DRD for qualifying foreign dividends (territorial element)
- •Transfer pricing under Section 482 requires arm's length transactions
Exam Tip
The foreign tax credit is limited to the U.S. tax on foreign-source income — you cannot use the FTC to offset tax on domestic income.
Frequently Asked Questions
Related Topics
Controlled Foreign Corporations (CFCs)
A controlled foreign corporation (CFC) is a foreign corporation in which U.S. shareholders (each owning 10% or more by vote or value) collectively own more than 50% of the stock by vote or value.
GILTI Tax
Global Intangible Low-Taxed Income (GILTI) is a category of CFC income that U.S. shareholders must include currently, designed to prevent profit shifting to low-tax jurisdictions through intangible assets.
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