International Aspects of the US Taxation System

389 Pages·2016·4.592 MB·English

by  Felix I. Lessambo (auth.)

FELIX I. LESSAMBO
International Aspects of the US Taxation System

Felix   I.   Lessambo
International Aspects
of the US Taxation
System
Felix   I.   Lessambo
The Peter J. Tobin College of Business
St. John’s University
Jamaica, New York, USA
ISBN 978-1-349-94934-2 ISBN 978-1-349-94935-9 (eBook)
DOI 10.1057/978-1-349-94935-9
Library of Congress Control Number: 2016954153
© The Editor(s) (if applicable) and The Author(s) 2 016
This work is subject to copyright. All rights are solely and exclusively licensed by the
Publisher, whether the whole or part of the material is concerned, specifi cally the rights of
translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on
microfi lms or in any other physical way, and transmission or information storage and retrieval,
electronic adaptation, computer software, or by similar or dissimilar methodology now
known or hereafter developed.
The use of general descriptive names, registered names, trademarks, service marks, etc. in this
publication does not imply, even in the absence of a specifi c statement, that such names are
exempt from the relevant protective laws and regulations and therefore free for general use.
The publisher, the authors and the editors are safe to assume that the advice and information
in this book are believed to be true and accurate at the date of publication. Neither the pub-
lisher nor the authors or the editors give a warranty, express or implied, with respect to the
material contained herein or for any errors or omissions that may have been made.
Cover illustration: © Endai Huedl / Getty
Printed on acid-free paper
This Palgrave Macmillan imprint is published by Springer Nature
The registered company is Nature America Inc. New York
A
CKNOWLEDGEMENT
Writing a book is always a challenge. But writing a book on international
aspects of the US tax system geared to MBA, MST students, and profes-
sionals, is an especially daring intellectual exercise for two reasons: the
diffi culty in choosing appropriate topics to cover and the complexity of
each subject chosen.
First and foremost, I would like to thank my wife, Aline, for stand-
ing beside me while writing this book and throughout my entire career.
I would also like to express my gratitude to those who motivated me
all along the project, knowing my dedication to the subject, and who
believed in my ability to complete this project: James Thompson, Fouad
Sayegh, and Brice Thionnet.
v

C
ONTENTS
1 Overview 1
1.1 Introduction 1
1.2 A Worldwide vs. Territorial Tax Regime 2
1.3 US Taxation of Individuals and Corporations 3
1.4 Reforming the US Tax System 3
1.4.1 B roadening the Tax Base 3
1.4.2 I ntegration of the Corporate and Individual
Tax Systems 4
1.4.3 T axing Certain Large Pass-throughs 4
Notes 4
2 The Underlying Principles of the US Tax System 7
2.1 Introduction 7
2.2 The Core Principles 7
2.2.1 T ax Neutrality 8
2.2.1.1 Capital Export Neutrality 8
2.2.1.2 C apital Import Neutrality 8
2.2.1.3 National Neutrality 8
2.2.1.4 Capital Ownership Neutrality 9
2.2.1.5 National Ownership Neutrality 9
2.2.1.6 Market Neutrality 9
vii
viii CONTENTS
2.2.2 T ax Equity 9
2.2.2.1 Vertical Equity 10
2.2.2.2 Horizontal Equity 1 0
2.2.3 F airness 1 1
2.2.4 T ax Simplicity/Administrability 1 2
2.2.5 A dequacy 13
2.3 The Ineffi ciency of the Aforementioned Principles 1 4
2.3.1 C apital Export Neutrality 1 4
2.3.2 C apital Import Neutrality 1 5
2.3.3 V ertical and Horizontal 1 5
Notes 1 5
3 Inbound Taxation 1 7
3.1 Introduction 1 7
3.2 History of Income Tax 1 7
3.2.1 I ndividual Tax 1 7
3.2.2 C orporate Tax 18
3.3 Forms of Enterprise and Their Tax Implications 1 8
3.3.1 R epresentative Offi ce 1 8
3.3.2 B ranch 1 8
3.3.3 C orporation (Subsidiary) 19
3.3.4 P artnerships 20
3.3.5 S ome Special Investment Structures 2 2
3.3.5.1 Joint ventures 2 2
3.3.5.2 Holding companies 2 2
3.3.5.3 Real estate REITs and REMICs 2 2
3.4 Financing US Investments 2 3
3.5 Other Potential Corporate Tax Liabilities 2 5
3.5.1 S tate and Local Tax 2 5
3.5.2 T ransfer Pricing and Documentation 26
3 .5.3 S ales and Use Taxes 2 7
3.5.4 H uman Capital and Personal Tax 2 7
3.5.5 S ocial Security Tax 2 8
3.5.6 F ederal Unemployment Tax 2 9
3.5.7 F ranchise Tax and Occupational Fees 29
3.5.8 E mployer Reporting and Withholding 2 9
Notes 2 9
CONTENTS ix
4 The Split of Tax Jurisdiction:
The Source Rules 3 1
4.1 Introduction 3 1
4.2 Statutory Rules 3 1
4.2.1 I nterest 3 2
4.2.2 D ividends 34
4.2.3 R ents and Royalties 3 5
4.2.4 I ncome from Sales of Personal Property 3 5
4.2.5 S ale of Real Property 36
4.2.6 D epreciable Assets 3 6
4.2.7 P ersonal Services Income 3 7
4.2.8 I ntangible Property 37
4.2.9 I nsurance Income 3 7
4.2.10 International Transportation Income 3 8
4.2.11 International Communication Income 3 8
4 .2.12 Income from Space or Ocean Activities or
International Communications 3 8
4.2.13 Amounts Received with Respect to Guarantees
of Indebtedness 3 8
4.2.14 Social Security Benefi ts 3 9
4.2.15 Foreign Exchange Income 4 0
4.3 Non-statutory Source Rules: Court
Determination 4 0
4.3.1 B anking and Financial Services 40
4.3.2 E ndorsement Agreement 4 1
4.4 Non-Statutory Rules: IRS Determination 4 4
4.4.1 S cholarships, Prices, and Award 4 4
4.4.2 A limony 4 4
4.4.3 E state 44
4.4.4 C omputer Programs 4 5
4.5 Source Rule for Deductions 4 8
4.5.1 S ource Rule Deduction for Research
and Development 51
4.5.2 S tewardship Expenses 52
4.5.3 L osses on Sales of Property 52
4.5.4 L egal and Accounting Fees 5 3
Notes 5 3