Discussion Topic 1: The Tax Cuts and Jobs Act of 2017 enacted a new Code Section 59A tax. Explain the reason for this tax, who it applies to, and the specific rules related to this new provision.
Discussion Topic 2: Foreign persons may either engage in business in the U.S. or in investing activities in the U.S. Discuss the various forms required for filing.
Reference
Misey, J., & Schadewald, M. S. (2018). Practical guide to U.S. taxation of international transactions (11th ed.). CCH.
Do the discussion first with the citations and reference then do the response each posted below.
Posted 1
The Tax Cuts and Jobs Act introduced Code Section 59A, which is the tax on base erosion payments of taxpayers with substantial gross receipts. Applicable taxpayers are required to pay the base erosion anti-abuse tax equal to the base erosion minimum tax amount for the tax year. This tax was created to keep businesses from taking too many deductions that source too much of the income earned in the United States back to the foreign country of the corporation. The corporation would receive no benefits in regards to this tax on certain depreciation, amortization, or royalties when related parties are involved in the creation of the expense. The base erosion anti-abuse tax only applies to corporations that are not S Corporations, a regulated investment company, or a real estate investment trust. This corporation must have average annual gross receipts of at least $500 million over the past 3 years. The base erosion percentage must also exceed 2%. “The base erosion percentage for any tax year is equal to the aggregate amount of base erosion tax benefits of the taxpayer for the tax year divided by the aggregate amount of specified deductions allowable to the taxpayer for the tax year” (Thomson Reuters Tax & Accounting, 2019.) Applicable corporations must fill out Form 8991, Tax on Base Erosion Payments of Taxpayers With Substantial Gross Receipts to pay the tax. It is a five page form that should be attached to the tax return.
References
Legal Information Institute (2017). 26 U.S. Code § 59A – tax on base erosion payments of taxpayers with substantial gross receipts. Legal Information Institute. https://www.law.cornell.edu/uscode/text/26/59A
Misey, Jr., R. J. & Schadewald, M. S. (2018). Practical guide to U.S. taxation of international transactions (11th Ed.). CCH Publications.
Thomson Reuters Tax & Accounting (2019). IRS finalizes forms and instructions for base erosion tax. Thomson Reuters. com/news/irs-finalizes-forms-and-instructions-for-base-erosion-tax/”>https://tax.thomsonreuters.com/news/irs-finalizes-…
Posted 2
Hi, Class,
U.S. tax law contains 2 territorial system for taxing the U.S. source income of non resident alien individuals.
- U.S. source investment type income – if a nonresident alien individual or foreign corporation derives fixed, determinable, annual, or periodic income form sources within the United States, the U.S. taxes the gross amount of that income at a flat rate of 30%. The person controlling the payment of the income must deduct and withholding the U.S. tax at 30$ rate.
- U.S. trade or business profit- if a nonresident alien individual is engaged in a trade or business within the United States. The net amount of income within the U.S. trade or business is taxed at regular tax.
Income tax treaties usually reduce the withholding tax rate on U.S. source dividend, interest from 30%- 15%. W-8 forms are Internal Revenue Service (IRS) forms that foreign individuals and businesses must file to verify their country of residence for tax purposes.
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