International Aspects of U.S. Income Taxation

International Aspects of U.S. Income Taxation

Description

This book addresses international aspects of U.S. tax law—the rules that govern U.S. taxation of U.S. activity by foreign persons and foreign activity by U.S. persons. It is an outgrowth of materials I have prepared for various courses in international taxation offered in the LL.M. program in taxation at New York University School of Law over the last twenty years. Though primarily attended by LL.M. students from the United States and numerous foreign countries, J.D. students typically also enroll in the courses, and there is no reason why the book may not be used with either group of students. The book is informed not only by teaching experience, but also by my experience practicing international tax law. I have tried to cover not only what is academically interesting, but also what is practical and important to tax practitioners in the private and public sectors. International tax draws from many sources and is exceedingly difficult. The book is designed to capture within its covers all that a student needs (other than the Internal Revenue Code and Treasury Regulations) to gain a sophisticated understanding of the field. There are many fine primers and treatises on international tax, but the rules are so intricate that students, who rarely have time to read outside sources, learn best by focusing on the primary material. My observation is that it is desirable that students studying international tax have prior or contemporaneous academic or practical exposure to corporate tax and at least passing familiarity with partnership tax. Each section of the book begins with carefully selected reading assignments in the Code and Regulations, followed by introductory “Notes” and then primary and secondary materials (cases, rulings, studies, etc.). In order to illustrate the effect of treaties, the reading assignments often include provisions of the U.S. Treasury Model Treaty and the treaty between the United States and the Netherlands, which are reproduced in the Appendix. Most sections conclude with a problem, which may be used as a vehicle for class lecture or discussion, designed to text understanding of the material in as practical a setting as brief hypothetical patterns permit. The Notes provide introductory explanation and probe policy and practical issues raised only peripherally or obscurely by the other assigned reading material. Though principally intended as a teaching resource, the book may also serve as a research and practice tool for practitioners. The Notes, which cite numerous cases, administrative materials, and law review articles, provide overview and analysis of most relevant practice areas and are an entry point to more detailed research. In that sense the Notes function as a concise analytical compendium, with more depth than a primer but not as exhaustive as a treatise. A table of contents follows immediately and a table of authorities and index are at the end of the book. The book, which is now in the fourth edition, reflects developments through July 1, 2009. Since the third edition, which was current thought August 1, 2007, there have been significant developments in several fields. Here are some of the highlights. On inbound matters, the United States entered into several new treaties with zero withholding on subsidiary-to-parent dividends (there are now twelve in all) and has begun the process on an individual treaty basis, consistent with OECD developments, of incorporating transfer pricing principles into attribution of profits to a permanent establishment. An important new protocol with Canada include a services permanent establishment, which is an emerging concept, and also a controversial and perhaps unintended provision on hybrid entities. Around the world, source countries are pressing to expand the scope of a permanent establishment, particularly in the area of services and activities of a subsidiary. Turning to transfer pricing, new cost sharing regulations were issued and advance pricing agreements continue to roll out. In the foreign tax credit area, there are new regulations on “foreign tax credit generator” transactions and several cases are pending in court, but proposed regulations on “technical taxpayer” issues arising in group consolidation regimes and reverse hybrid structures have not been finalized yet. For revenue reasons, Congress postponed the choice to adopt worldwide apportionment of interest expense to 2011. In subpart F, Section 954(c)(6)’s look-through rule will sunset at the end of 2009. New contract manufacturing regulations were issued but regulations implementing a previously announced new approach to substantial assistance in the foreign base company services area are still forthcoming. In cross-border mergers and acquisitions, proposed regulations at last (after twenty years) provide guidance under Section 367(a)(5) on outbound asset reorganizations, and updated temporary regulations shed light on inversion transactions. Various changes to regulations under Sections 956 and 367 combat attempts to use reorganizations as a means of achieving tax-free repatriations of cash. Proposed regulations taking a very different approach to branch currency transactions have not been finalized yet. The Obama administration included important changes to the international rules in its proposed 2010 budget, including deferral of deductions for expenses attributable to deferred income, consolidation of all foreign subsidiaries for purposes of calculating indirect foreign tax credits, prohibition of foreign tax credit separation techniques that are the subject of pending proposed regulations, elimination of disregarded entity status (under the check-the-box rules) for certain foreign companies beneath the first foreign tier, and inclusion of goodwill and workforce value within the definition of intangibles subject to transfer pricing constraints. The proposal was criticized by the business community as anti-competitive and by others as too piecemeal and also met with skepticism about the revenue estimates. At this moment, the near-term prospects for international tax reform in the United States are quite uncertain.

Publication Date

2009

Edition

4

International Aspects of U.S. Income Taxation

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