U.S. Inbound Investment. April 2017

Transcription

1 U.S. Inbound Investment April 2017

2 Table of Contents About Frazier & Deeter Tax Considerations Structuring Alternatives Further Considerations Additional Inbound Planning Bio & Contact Information To ensure compliance with Treasury Department regulations, we wish to inform you that any tax advice that may be contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions or (ii) promoting, marketing or recommending to another party any tax-related matters addressed herein. 2

3 Our Unique Approach About Our Firm Frazier & Deeter. All rights reserved.

4 Key Facts About Frazier & Deeter Frazier & Deeter is ranked in the Top 60 Largest Firms in the U.S professionals across offices in Atlanta, Alpharetta, Nashville, Philadelphia and Tampa. Fastest Growing Firms in the U.S Inside Public Accounting Top 25 Best Managed U.S. Firms Inside Public Accounting Named a 2015 Best Firm to Work For Accounting Today 9 time winner Best of the Best CPA firm Inside Public Accounting Member of PKF International and CPAmerica Full suite of audit, tax & advisory services Clients in all 50 states, Canada, Mexico, Central and South America, Europe, China and Australia 4

5 Qualifications Frazier & Deeter Highest level of credentials in the accounting industry PCAOB registered AICPA certified Audit methodologies developed by former PCAOB members Majority of partners have Big 4 backgrounds Recognized as a qualified firm by top financial institutions 5

6 Key Facts Member of PKF International PKF has 440 offices in 150 countries worldwide. NORTH AMERICA PKF International has 41 member firms in U.S. and Canada EUROPE PKF International has member firms in every EU country, the key emerging markets in Eastern and Central Europe, and in some of the Central Asian republics MIDDLE EAST PKF has a comprehensive representation across the Middle East from the Mediterranean states to the GCC states in the Gulf. AMERICAS 45,940 Professionals 59,428 PKF is represented in Mexico, all the Latin American countries and throughout the Caribbean Professionals AFRICA Our members extend from North Africa down through East Africa, across English and French speaking West Africa and throughout Southern Africa ASIA PACIFIC PKF members cover the region from the Indian sub-continent and South East Asia mainland to Oceania, Hong Kong and China 6

7 US Inbound Investments Various Tax Considerations Frazier & Deeter. All rights reserved.

8 Tax Considerations U.S. Inbound Investments Tax return filing threshold Entity selection/structure Non-business income reporting Owning real estate in the United States State & Local tax issues ( SALT ) Other planning items 8

9 Tax Considerations U.S. Trade or Business A nonresident alien individual or foreign corporation generally pays U.S. income tax at the regular U.S. rates on the income (including certain foreign-source income) that is effectively connected with a U.S. trade or business. Threshold for what constitutes a U.S. trade or business is low. No statutory definition; reliance on case law and IRS rulings. Determination of what income is effectively connected with the conduct of a U.S. trade or business. 9

10 Tax Considerations Permanent Establishment Most income tax treaties exempt the business profits of a resident of a treaty country from U.S. tax unless those profits are attributable to a taxpayer's U.S. permanent establishment ( PE ). These treaties allow foreign persons to conduct limited commercial activities in the U.S. without being subject to U.S. tax (PE threshold higher than U.S. Trade or Business ). In general, a PE is a fixed place of business through which the business of an enterprise is carried on in whole or in part. Exceptions (subject to specific treaty provisions) if the facility is for: Storage, display or delivery of goods Storage for processing by another enterprise Purchasing or collecting information Advertising, supply of information, scientific or preparatory or auxiliary activities Activities of a dependent agent may also create a PE. 10

11 Tax Considerations Branch or Subsidiary Both are essentially subject to the same tax rates: up to 35% Federal corporate income tax plus State income tax plus dividend withholding tax (or branch profits tax) upon repatriation. Branch profits tax on dividend equivalent A branch will require the foreign owner(s) to file US tax returns. Allocation between US and worldwide income and expenses adds to the complexity of a branch return (especially at the State and local tax level). Corporate form provides for income deferral in home country. Check-the-box elections and hybrid entities. 11

12 Tax Considerations Limited Liability Company (LLC) Transparent for US tax purposes unless an election is made to treat the LLC as a corporation. Characterization may be difficult in the shareholder s jurisdiction. Check-the-box regime allows for substantial flexibility and sometimes planning opportunities. Single-member LLC is disregarded for US tax purposes. Transactions between single-member LLC and its owner are therefore also disregarded for US tax purposes. 12

13 Basic Structuring Alternatives A1 A2 A1 A2 A1 A2 AT Co AT Co AT LP US Sub US LLC US LLC US Sub files US tax return Dividend withholding tax No exposure for AT Co, A1 and A2 AT Co files US branch return Branch profits tax No exposure for A1 and A2 A1 and A2 file individual US tax returns AT LP files US partnership tax return No dividend withholding tax or BPT Individual income tax rates 13

14 Consolidated Returns Dos and Don ts NO YES YES A1 A2 A1 A2 A1 A2 AT Co AT Co AT Co US Sub US Sub US Holding Co US Sub US Sub US LLC US LLC 14

15 Tax Considerations Non-Business Income/Withholding Generally, there is a 30% U.S. withholding tax from certain types of (non-business) income from U.S. sources paid to foreign persons. This applies to payments of fixed or determinable annual or periodical ( FDAP ) income from U.S. sources. FDAP income generally includes interest, dividends, rents, royalties and any other annual or periodical gain, profit or income. Income tax treaties between the U.S. and foreign countries may reduce or eliminate withholding tax on various types of FDAP income. Reduced withholding rate under treaty through withholding certificate provided by beneficial owner to payor (US withholding agent). Generally, this will be Form W-8BEN-E. No requirement to submit the withholding certificates to the IRS. 15

16 Tax Considerations Treaty-based Return Positions A taxpayer who, with respect to any tax imposed, takes the position that a treaty of the U.S. overrules (or otherwise modifies U.S. tax law) is generally required to disclose such position on a U.S. tax return. If no tax return filing is otherwise required, disclosure is made by filing a return. Return need only include required disclosure, taxpayers name, address, and taxpayer identification number. The required disclosure is made on Form 8833, attached to the return. Exceptions from the Form 8833 reporting requirement include certain amounts that are reported on Form 1042-S (e.g. dividends) and that do not total more than $500,000 for the tax year. 16

17 Tax Considerations Foreign Investment In U.S. Real Property Tax Act ( FIRPTA ) Rules Foreign persons are not generally subject to U.S. tax on gains from dispositions of capital assets. However, under the FIRPTA rules, a nonresident alien individual or foreign corporation disposing of a U.S. real property interest ( USRPI ), will be taxed on the net gains from such a disposition as if such gains or losses were effectively connected with the conduct of the U.S. business. Special withholding regime under FIRPTA: 15% of amount realized; or 35% of gain. Complex interplay with corporate reorganization rules. 17

18 Tax Considerations SALT Issues Impacting Foreign Entities There are 50 states, 3,007 counties in addition to cities in the United States (Wikipedia 2013) States and localities (counties, cities) are not obligated to honor tax treaties State income tax has some protections under P.L Sales & Use tax ( SUT ) liability has extremely low thresholds Nexus concept (similar to PE concept) Beware of taxes based on items other than net income SUT per above Texas gross margin tax, Ohio CAT tax, Washington B&O tax 18

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21 Additional Inbound Planning Items Organize Capital Structure SALT Planning Transfer Pricing Debt vs. equity Interest rate planning Interest deductibility planning Nexus analysis (SUT and Income/Franchise tax) Sales tax matrix Intellectual property ( IP ) Management services Intercompany product sales 21

22 USA Tax Reform Change on the Way >Trump Plan >House GOP Plan >Current Law >Border Adjusted Tax 22

23 Proposal Comparisons - Business Tax Reform Proposal Trump Plan House GOP Plan Current Law Corporate Tax Rate 15 percent 20 percent Depreciation If election is make, immediate deduction of capital expenditures by manufacturers Interest on debt used to acquire such assets would not be deductible Immediate deduction of capital expenditures 35 percent (excluding state income tax) Business Tax Rate Income form S corporations, partnerships, disregarded entities and sole proprietorships would be taxed at 15% Income from S corporations, partnerships, disregarded entities and sole proprietorships would be taxed at 25% Income from S corporations, partnerships, disregarded entities and sole proprietorships taxed at regarded tax owner s tax rate Limited to interest income Interest Deduction Reasonable cap on the deductibility of business interest expenses* Excess interest expense carries over to following years Exceptions to be developed for financial businesses (e.g., banks insurers, etc.) 23

24 Proposal Comparisons Business Cont. Tax Reform Proposal Trump Plan House GOP Plan Current Law Net Operating Losses Silent Unlimited carryforward Carryforwards will be increased by interest factor Carryback two years Carry forward 20 years Income that may be offset in any year limited to 90% of income Section 199 Gross Production Activities Silent Repeal Domestic production activities deduction equal to 9 % of taxable income or qualified production activities Business Tax Credits Largely repeal, but retain the research and development credit and business tax credit for onsite child care Largely repeal specialinterest credits and deductions, but retain the research and development credit Small business health care credit, research credits, hybrid vehicle credits, etc. 24

25 Proposal Comparisons International Tax Reform Proposal Trump Plan House GOP Plan Current Law Taxation of International Income Silent Territorial system based on consumption Subpart F Regime Earnings of Foreign Subsidiaries One-time 10% deemed repatriation tax on cash held abroad that represents earnings of foreign subsidiaries of U.S. companies payable over 10 years Future earnings of foreign subsidiaries of U.S. corporations are taxable as earned One-time deemed repatriation tax on earnings of foreign subsidiaries of U.S. companies of 8.75% to the extent held in cash or cash equivalent and 3.5 % otherwise, payable over 8 years Subject to Corporate Income Tax Rate Dividends from Foreign Subsidiaries Silent Excluded from income of U.S. parent Subject to Corporate Income Tax Rate Subpart F Income Silent Largely repeal Subject to Corporate Income Tax Rate 25

26 Border Adjusted Tax The House plan provides for border adjustments exempting exports and taxing imports designed to reflect a consumption based tax. The belief is that it will eliminate incentives created by the current U.S. tax system to move or locate operations outside the U.S. Generally operate by excluding from tax the gross receipts earned from exports while effectively taxing imports by disallowing a deduction for the cost of the imported good. In addition, all capital expenses are fully expensed and net interest payments are no longer deductible. Active foreign earnings of U.S. multinationals would not be subject to tax upon repatriation. The border adjusted tax should raise U.S. tax revenue through the broadening of the tax base. 26

27 Border Adjusted Tax - Example Tax Without Borders Adjustment Tax With Borders Adjustment Domestic Sales $1,000 $1,000 Domestic Inputs $300 $300 Foreign Inputs $300 $300 Pre-tax Income $400 $400 Taxable Income $400 $700 20% $80 $140 After-Tax Income $320 $260 27

28 Michael R. Whitacre Partner, Tax Services 30+ years in auditing and taxation in public accounting Mike has worked proactively with a variety of businesses including clients in the technology, service and manufacturing/distribution sectors. He has assisted clients with federal, state and international tax issues including mergers and acquisitions, controversy and tax minimization. Mike s areas of specialization include: corporate taxation, cross border taxation, mergers and acquisitions, and taxation of pass-through entities. Formerly Regional Head of Tax North America for a Top 5 international accounting firm. Professional Affiliations: American Institute of Certified Public Accountants Association for Corporate Growth Technology Executives Roundtable [TER] Board of Directors Financial Executives Institute (FEI) Georgia Society of Certified Public Accountants B.S., Accounting, Indiana University Kelley School of Business 28

29 Contact Information Michael R. Whitacre office