Check-the-Box Elections for Foreign Subsidiaries and Branches: Achieving Optimal Tax Treatment Through Entity Selection

Using Hybrid Entities for Tax Arbitrage, Structuring Entities to Enable Deferral of Foreign Profits, Planning Tips

Recording of a 110-minute CPE webinar with Q&A

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Conducted on Wednesday, April 20, 2022

Recorded event now available

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Course Materials

This course will provide tax advisers with thorough and practical guidance on the advantages and pitfalls of utilizing the check-the-box election for foreign subsidiaries. The panel will discuss the various tax effects of specific elections, outline the tax timing and treatment, and explain repatriation and other implications of income from foreign subsidiaries under the new law.

Description

Choosing the form of an entity in a cross-border structure has always been complex. While the Section 7701 check-the-box provisions for entity selection remain one of the most potent tax planning tools available to U.S. taxpayers conducting operations outside the U.S., the treatment of those entities, and their U.S. owners, may be significantly different than in the past.

For taxpayers with foreign activities, the ability to create an entity structure to minimize or defer taxes has been an integral component of cross-border tax strategies. The regulations provide flexibility for U.S. taxpayers engaging in foreign business. Still, tax advisers must know the practical aspects of the rules and the impact of the 2017 tax law changes to maximize the tax benefits.

Section 7701 provides default classification rules for eligible entities but allows them to determine how it is classified for U.S. tax purposes. A foreign entity subject to U.S. tax must make its initial election when it becomes relevant, i.e., when it impacts the U.S. tax liability of any person for either payment or informational return purposes.

Listen as our experienced panel provides a thorough and practical guide to the check-the-box regulations of Section 7701.

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Outline

  1. Overview of the U.S. tax stakes for foreign entity selection
  2. Basic entity classification rules of U.S.
    1. Identifying when a de facto entity has been formed for U.S. tax purposes (state law not controlling)
    2. When entity selection becomes “relevant”
    3. Domestic and foreign “default entity classification” rules
    4. Expansion of Subpart F’s CFC Rules; downward attribution rules and recent regulations
  3. Section 962 election by an individual
  4. GILTI regime and the Final GILTI high-tax exclusion regulations
  5. Other Considerations and Tax Strategies relevant to foreign entity selection
    1. Planning into Subpart F to avoid GILTI
    2. Check-and-Sell Transactions
    3. CTB to flow-through to combine QBAI or avoid Code § 59A BEAT
    4. Final Foreign Branch Tax Credit Limitation Basket (brief overview)
    5. Final Anti-Hybrid Regulations recently issued under Code § 267A (brief overview)
    6. Disposition of partnership interests by foreign partners under Code § 864(c)(8)
  6. Preparing IRS Form 8832, and Late Elections (§ 9100 Relief)
  7. Key Take-Aways

Benefits

The panel will discuss these and other vital issues:

  • The implications of using check-the-box elections to pull foreign-source income out of Subpart F treatment
  • The effect of the new final foreign tax credit regulations on entity selection
  • Retroactive entity selection and completing Form 8832
  • How to determine whether a foreign entity is relevant for U.S. taxation purposes
  • The impact of tax law changes on check-the-box elections and tactics to maximize tax savings

Faculty

Fuller, Pamela
Pamela A. Fuller, Esq.

Counsel (Tax, M&A, International)
Zahn Law Group

Ms. Fuller’s practice has a triple focus: tax planning, tax controversies, and tax compliance. She advises a wide...  |  Read More

Kalungi, Ronald
Ronald Kalungi, JD, LLM

Director of International Tax
Drucker & Scaccetti

Mr. Kalungi provides tax planning, tax compliance and business consulting services to a broad base of clients including...  |  Read More

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