This will in effect be a form of double taxation (Hines & Rice, 1994). A strategy for a US-Based taxpayer to repatriate earnings from the foreign markets and avoid or mitigate the U.S. tax impact on repatriation Lots of profits that most taxpayers in the U.S attribute to mitigate or avoid taxes should be taxed up to about 35% when they are repatriated. In this context, the client can repatriate his earnings from the business abroad and at the same time avoid taxes using the “Cash Hoards” strategy. The fact that U.S has cash hoards indicate that investment is not being hindered by lack of cash. The tax payer can thus bring money back home by shifting income through transfer pricing, a strategy that will allow him to assign costs to subsidiaries in high-tax nations and profits to tax heavens. The technique can work effectively putting in mind an example set by Google, a company that reduced its taxes by about$3.1 billion in the last three years by shifting most of its earnings attributed abroad eventually to Bermuda. The tax gains from such profit shifting can result in a greater effect on share price compared to boosting sales or reducing other expenses, as the cutting rate goes directly to the bottom line. The tax system that creates such an incentive is an issue of focus. A territorial tax structure with better policing of shift pricing is a good option. A global consolidation system with no deferral is the best. Evaluation of Foreign tax credits An individual may claim the foreign tax credit for the entire taxes paid in a foreign nation. However, he cannot claim a tax credit for those taxes paid on any earnings which have been excluded from the taxation in US using the attributed foreign housing exclusion or the income exclusion Scholes, (1992) and his fellow scholars argue that a tax credit reduces one’s tax liability based on a dollar-for-dollar term, and thus is generally more valuable compared to a deduction which cuts his or her taxable income. Further, foreign tax credit cannot go beyond one’s tax liability multiplied by a given percentage, which is his total foreign-source earnings divided by his total global income. He must figure out the permitted amount by different categories of earnings. Examples of earning categories include wages and investment income. Any foreign tax credit amount beyond the greatest limit may be shifted back to a preceding tax year or can be carried forward to the following tax year. Credits that the client could use and the impacts on taxes Refundable tax credits If the amount of income tax that the client owe is less than that of tax credits of which he is eligible, he will not only avoid paying tax, but he will actually be refunded for the difference. Thus, for example, if he owes $800 in tax but has $1,200 in refundable credits, the client will receive a $400 refund. Additional Child Tax Credit and Earned Income Credit for low-income workers are some of the most common refundable credits to use (De Mooij & Ederveen, 2003). Non-refundable Tax Credits If the client uses this tax credit, it will mean that he would not reduce the amount of tax he owes for less than zero. In simpler terms, he cannot generate a refund if the amount of credit is higher than the taxes
Assignment 3: International Taxation and Foreign Tax Credits Name Institution Assignment 3: International Taxation and Foreign Tax Credits Types of organizations that a US-based taxpayer could establish abroad and the various tax impacts that these types of organization may cause An intercontinental tax strategy starts with selecting the type of entity to be considered…
The discussion covers quite a number of topics including credit for foreign income taxes, limitation on credit, maximum allowable foreign tax credit, carry-back and carryover of the foreign tax credit, claiming the tax credit or deduction each year, foreign taxes not eligible for the foreign tax credit, foreign source income, refunds and adjustments and corporate foreign tax credit situation in the US.
23). Since 1940s, the U.S tax code has undergone many modifications to ensure justice to taxpayers as well as to generate revenue for the federal government. Tax credits, along with other instruments such as tax deductions and tax exemptions, was used to protecting various income groups and business enterprises during economic downturn (economic instability).
[Shaxon, N. (2012)] In order to acquaint with the concept of transfer pricing, consider two companies, that is a parent companies and a subsidiary company or two subsidiaries that have the same parent company, actively involved in trading with each other.
Although the market value of US companies have been reduced after economic recession but the investment by the foreign individual as well as institutional investors in US companies have not been reduced much due to the favourable rules, policies and tax implications of the country.
In order to promote this dynamism, it is necessary that the U.S. government collect taxes from income that is earned only within the nation and companies that are earning profit outside the U.S. boundaries should be allowed to follow the tax rules of the countries in which they are doing business.
Tax credits, along with other instruments such as tax deductions and tax exemptions, was used to protecting various income groups and business enterprises during economic downturn (economic instability). Tax credits are neutral and enable the Congress in making certain that
This tax regime not only exists in this foreign country, but such investors and individuals can take advantage of this offshore system to evade paying taxes even in their own countries. Anyone can operate in an offshore jurisdiction.
It does not require these
The main objective of the research and development department is to find out the foreign source of income and estimate accurately the number of multinationals operating in the United States. The other purpose of research and development department of the US is to estimate the accurate limit of the foreign trade credit.
25 pages (6250 words)Research Paper
Hire a pro to write a paper under your requirements!
Win a special DISCOUNT!
Put in your e-mail and click the button with your lucky finger
Apply my DISCOUNT
Got a tricky question? Receive an answer from students like you!Try us!
Let us find you an essay for FREE
Contact us via Live Chat, call us at +16312120006or send an email to email@example.com