CB&H provides international tax compliance, consulting, and structural planning to closely held US middle-market companies with international operations abroad. Check-the-box planning under the IRS Entity Classification regime is an important aspect of CB&H’s international tax planning and structuring including the design, formation and operation of intangible property holding companies.
STRUCTURAL ISSUES
Choice of commercial entity in both the U.S. and foreign jurisdiction is the most important tax planning decision you will make. It significantly influences the income taxes that are ultimately paid.
Domestic tax consequences can significantly differ among these structural choices. The chosen domestic entity will, in turn, significantly influence the choices available in the international context.
COMPATIBILITY
The international entity selection must be compatible with the domestic parent in order to minimize the overall tax burden.
Check-the-box regulations. Under these regulations, foreign corporations can be treated as:
A branch, if wholly owned
A partnership when more than a single owner is involved
Your treating a foreign corporation as a flow-through entity for U.S. tax purposes is done via an election (Form 8832) and is made strictly for U.S. tax purposes. In the foreign jurisdiction, the foreign entity retains its corporate identity. Similarly, foreign branches and unincorporated partnerships can be treated as corporations for U.S. tax purposes via the same election process. This election giving the same entity corporate characteristics in one jurisdiction and noncorporate characteristics in the other creates what is known as a hybrid entity.
INTERNATIONAL HOLDING COMPANIES
Although utilization of International Holding Companies (IHC) can provide numerous benefits for the parent company, complex provisions and regulations, designed to eliminate the possibility of income tax deferral and the possibility of double taxation, must be taken into account for these benefits to be realized at their full potential. CB&H specializes in assisting U.S. corporations to facilitate their global operations. Our experts will diligently strive to both simplify and minimize the burden of global taxation on your foreign operations, including minimization or elimination of foreign withholdings taxes on the repatriation of earnings.
CONTROLLED FOREIGN CORPORATIONS
To the extent your foreign subsidiary operates in a low-tax jurisdiction, it enjoys deferred U.S. taxes. Concerned that U.S. corporate taxpayers would take advantage of this deferral technique, Congress enacted Subpart F of the Code to discourage U.S. taxpayers from using foreign corporations to defer U.S. taxes by accumulating certain types of income in foreign base companies located in low tax jurisdictions. New proposed regulations issued in 2008 are more taxpayer-friendly. We can show you how these new rules work.
These provisions are primarily directed at two types of income:
Passive income.
Income derived from dealings with related corporations using a base company to shift income away from related parties in a high tax jurisdiction.
HYBRID STRUCTURES
Losses of foreign operations can be passed through to owners of closely held businesses with fewer obstacles than for widely held companies. Multi-tier hybrid structures can provide S corporation, LLC, or partnership owners with access to the losses incurred in their foreign affiliates. Often, the passive activity loss limitation rules will not apply to non-active owners due to income of the U.S. operations. For actively involved owners, various arguments are available to support the contention that the foreign activities are not passive activities. Further, hybrid entities enable the U.S. owners to get current U.S. benefits while preserving loss carry forwards locally.
