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Navigating the Effectively Connected Income Tax Regime: Avoiding Devastating Impact on Taxes and Financial Statements

Implementing Compliant Tax Strategies to Avoid or Mitigate Punitive Taxation

Note: CLE credit is not offered on this program

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

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Conducted on Tuesday, April 20, 2021

Recorded event now available

This course will provide corporate tax professionals and advisers to multinational corporations (MNCs) and other multinational businesses with a detailed, practical, and thorough guide to mitigating the risk of high tax levels on effectively connected income (ECI). The panel will provide practical guidance concerning tax planning and using fully compliant offshore companies to achieve a desirable overall effective tax rate in a multinational business.

Description

In recent years, the IRS, governmental authorities in many countries, the G-20, and the OECD are increasingly turning their attention to MNCs and multinational businesses that shift income to lower-taxed foreign jurisdictions to avoid or reduce business taxation. This global scrutiny is aimed at company profits that are effectively connected to a jurisdiction other than that claimed by the business.

The IRS's successful application of the ECI rules against a noncompliant business may trigger significant tax and financial statement consequences. A failure to properly plan considering ECI risks can result in an effective tax rate of more than 50 percent. Such taxation may also cause significant financial statement tax revisions to properly reflect the allocation of income between the United States and foreign jurisdictions.

Listen as our panel provides tax executives, professionals, and auditors with practical guidance to determine whether their tax planning policies and procedures may be subjecting their company to ECI risks. Using illustrative examples, the panel will outline effective approaches to plan for multinational business planning and mitigate tax risks and potential government penalties.

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Outline

  1. ECI and financial statement risks
    1. Background
    2. Overview of the ECI rules
    3. Growing IRS scrutiny of profit shifting and OECD base erosion and profit shifting (BEPS) initiative
  2. When an MNC or multinational business may be subject to the ECI risks
    1. Value drivers predominantly performed by U.S. group members
    2. U.S.-located control and decisionmaking
    3. Lack of foreign entity CEO and management capability
  3. Major issues for potentially vulnerable MNCs or multinational businesses
    1. Risk assessment
    2. Treaty issues
    3. High tax liabilities and penalties
    4. Online business risks
    5. Financial statements
  4. Actions to mitigate risk
    1. Post-tax filing
    2. Current tax planning and filings
    3. Future tax planning

Benefits

The panel will cover these and other key issues:

  • What is ECI?
  • How can tax executives and advisers assess the risks of ECI and its impact on financial statements?
  • How can tax executives and advisers steer companies on avoiding high ECI tax liabilities and penalties?
  • What are the key steps to mitigate taxable ECI risks in the past, present, and future?

Faculty

Clark, Randy
Randy J. Clark
Partner
K&L Gates

Mr. Clark is a partner in the firm’s Charlotte office and a member of the tax practice group. He focuses his...  |  Read More

Tejeda, Adam
Adam J. Tejeda
Partner
K&L Gates

Mr. Tejeda counsels clients on a wide range of tax matters associated with domestic and international business...  |  Read More