However, in reality the U.S. government ignores this concept of neutrality and imposes taxation on profits earned by U.S. companies in any country outside the border. Thus, U.S. companies who seek to spread businesses overseas are burdened with a combination of tax systems. Such companies are required to pay taxes to the U.S. Government as well as the government of the countries where they are conducting their activities (Henchman, 2011, pp.1-2). This paper contains my proposals as a tax professional to my U.S based client who wants to expand his business into foreign markets. Taxpayer’s organizations My client can establish chain of hotels or restaurants in a foreign country. This will make my client fall under deferral system of U.S. foreign tax. Under this system, subsidiary companies that are situated in other countries can be exempted from U.S. taxation unless such revenue is repatriated to the parent company like in the form of dividends. Also, I will advice my client to launch hotels in countries that are keen on promoting tourism by easy tax credits and ready development loans. For instance in Peru, foreign investors on hotel industry are given tax incentives and tax returns even before the investments are completed or the recommended constructions are completed (Finkelstein, 2012). The second type of organization that my client can establish is manufacturing company. This will benefit my client if he sells the manufactured products to foreign clients with foreign titles. Such income will fall under foreign income category although the company is situated with the U.S. Moreover, in the initial year since my client will be new in the foreign market his sales volumes will be low. In that case my suggestion will be to conduct activities from the U.S. without opening subsidiary company in the foreign country. In this way he will be able to avoid local taxes in the country on income earned from local sources. Tax mitigation on repatriate earnings A major portion of income earned by U.S. companies is derived from foreign sources. Both the United States and the country in which the company is executing its activities prefer to impose taxes on the company. The governments of both countries try to benefit from these companies thereby establishing double taxation concept. Although the U.S. government attempts to mitigate its tax claim, these overlapping tax impositions create complications for U.S. tax collectors. This provides opportunities to multinational companies to avoid taxes. Subsidiary companies are confronted with high tax rates in countries where they operate. As an owner of a multinational company, my client will have an incentive to get income remittances in one of the forms that propose tax deductions. The incentive will not be in the form of dividends. A remittance that is subject to tax deductions directly reduces tax payments of source country. On the other hand, dividend expenses may only generate unusable surplus of credits. The strategy is to keep the rates of tax less than that on dividends on the forms of payments that fall under the category of tax deductions. This will be more beneficial if the parent company that is situated within US has surplus of credit. It will be then profitable for my client to conduct payments in these tax-deductible forms. The surplus of credits can also be utilized for counterbalancing any remaining U.S. tax on such payments. The principle impact will be that
U.S. Foreign Tax System Introduction Globalization has become the norm of U.S. business world. The increasing adaptation of globalization by both large and small companies has changed the traditional ideas of tax reforms that earnings can be taxable if only they are earned within geographical boundaries…
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.
41). In this society a corvee system was instituted where peasants too poor to pay other forms of taxation were placed into forced labour. This occurred in addition to the tithe, which is akin to modern forms of sales tax. While Ancient Egypt is the first recognized society with a tax system, it was the Persian Empire that in 500 B.C.
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).
A taxpayer could establish a partnership kind of business or a corporation. For these types of organizations, income taxes on the earnings realized will be “passed through” to the shareholders, who pay them on their yearly tax returns. If he establishes a corporation, it will mean that the corporation pays income taxes earlier on income, while the shareholders pay taxes separately on those earnings upon distribution as dividends.
[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.
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
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