What is Multinational Taxation?

1. What is Multinational Taxation? • A simple definition: Tax treatment of individuals and entities subject to taxation in more than one country • Taxation may result in: • Country in which income is earned • Country of residence/citizenship/domicile • We will focus primarily on U.S. taxation of multinational activities • Tax treaties with other countries frequently alter the general rules discussed here

2. Keys to U.S. Taxing Jurisdiction

3. Overview of Taxation of Outbound Transactions • U.S. person earning foreign income • Worldwide income of U.S. persons subject to U.S. taxation • Income may also be taxed where earned • Foreign tax credit available against U.S. tax for foreign income taxes paid on foreign-source income • Planning to reduce U.S. tax: • Avoid classification as a U.S. person, or shift income to a foreign person (controlled by the U.S. person) • Maximize available foreign tax credits

4. Overview of Taxation of Inbound Transactions • Foreign person earning U.S. source income • U.S. source investment income earned by foreign persons taxed at flat 30% rate • No deductions allowed • Tax withheld at source • Rate often reduced by treaty • Many types of interest income not taxed • Gains on sale of investment assets other than real property not taxed

5. Inbound Transactions continued • U.S. source business income earned by foreign persons taxed under normal U.S. rules • Deductions and credits allowed • Branch profits tax may apply to income earned by foreign corporations • Income may also be taxed in foreign person’s country of residence/citizenship/domicile • U.S. foreign tax credit does not apply to inbound transactions

6. Basic Terminology • What is a ‘person’ for tax purposes? • Individual, corporation, partnership, or trust • What is a U.S. person? • U.S. citizen or resident alien • Corporation or partnership domiciled in (formed under the laws of) the U.S. • Trust subject to authority of a U.S. court with fiduciaries that are U.S. persons • What is a foreign person? • Any person not considered a U.S. person

7. Terminology continued • What is a resident alien? • Green card test • Substantial presence test • Strong form – physical presence in the U.S. for 183 days or more during calendar year • Weak form – Physical presence days in current year + 1/3 of days in prior year + 1/6 of days in second prior year > 183 • Applies only if at least 31 physical presence days in current year