National Tax Environments
The international tax environment confronting a MNC or an international investor, is a function of the tax jurisdictions established by the individual countries in which the MNC does business or in which the investor owns financial asts. There are two fundamental types of tax jurisdiction: the worldwide and the territorial. Unless some mechanism were established to prevent it, double taxation would result if all nations were to follow both methods simultaneously.
Worldwide Taxation
The worldwide or residential method of declaring a national tax jurisdiction is to tax national residents of the country on their worldwide income no matter in which country it is earned. The national tax authority, according to this method, is declaring its tax jurisdiction over people and business. A MNC firm with many foreign affiliates would be taxed in its home country on its income earned at home and abroad. Obviously, if the host countries of the foreign affiliates of a MNC also tax the income earned within their territorial borders, the pos
sibility of double taxation exists, unless a mechanism is established to prevent it..
Territorial Taxation
The territorial or source method of declaring a tax jurisdiction is to tax all income earned within the country by any taxpayer, domestic or foreign。 Hence regardless of the nationality of a taxpayer .if the income is earned within the territorial boundary of a country, it is taxed by that country .The national tax authority, according to this method, is declaring its tax jurisdiction over transactions conducted within its borders. Conquently, local firms and affiliates of foreign MNCs are taxed on the income earned in the source country. Obviously, if the parent country of the foreign affiliate also levies a tax on worldwide income, the possibility of double taxation exists, unless a mechanism is established to prevent it.
Foreign Tax Credits
The typical approach to avoiding double taxation is for a nation not to tax foreign-source i
ncome of its national residents. An alternative method, and the one the United States follows, is to grant to the parent firm foreign tax credits against U.S. taxes for taxes paid to foreign tax authorities on foreign-source income. In general, foreign tax credits are categorized as direct or indirect. A direct foreign tax credit is computed for direct taxes paid on active foreign-source income of a foreign branch of a U.S. MNC or on the indirect withholding taxes withheld from distributed by the foreign subsidiary to the U.S. parent. For foreign subsidiaries of U.S. MNCs, an indirect foreign tax credit is computed for income taxes deemed paid by the subsidiary. The deemed-paid tax credit corresponds to the portion of the distribution of earnings available for distribution that were actually distributed. For example, if a wholly owned foreign subsidiary pays out dividends equal to 50 percent of the earnings available for distribution, the deemed-paid tax credit is 50 percent of the foreign income taxes paid by the foreign subsidiary.
In a given tax year, an overall limitation applies to foreign tax credits; that is, the maximum total tax credit is limited to the amount of tax that would be due on the foreign-source income if it had been earned in the United States. The maximum tax credit is figur
ed on worldwide foreign-source income; loss in one country can be ud to offt profits in another. Excess tax credits for a tax year can be carried back one year and forward ten years. Examples of calculating foreign tax credits for U.S. foreign branch and subsidiary operations are provided in the next ction. Value-added taxes paid may not be included in determining the amount of the foreign tax credit. But they are nevertheless indirectly expend as part of the cost of a good or rvice.
Individual U.S. investors may take a tax credit for the withholding taxes deducted from the dividend and interest income they received from the foreign financial asts in their portfolios.
Organizational Structures for Reducing Tax Liabilities
Countries differ in how they tax foreign-source income of their domestic MNCs. Additionally, regardless of the twin objectives of tax neutrality and tax equity, different forms of structuring a multinational organization within a country can result in different tax liabilities for the firm. Thus, it behooves management to be familiar will the different organ
izational structures that can be uful at various stages in the life cycle of the MNC for reducing tax liabilities. The following discussion on MNC organizational structure relates to U.S. tax regulations.
Branch and Subsidiary Income
An overas affiliate of a U.S. MNC can be organized as a branch or a subsidiary A foreign branch is not an independently incorporated firm parate from the parent, it is an extension of the parent. Conquently, active or passive foreign-source income earned by the branch is consolidated with the domestic-source income of the parent for determining the U.S. tax liability, regardless of whether or not the foreign-source income has been repatriated to the parent. A foreign subsidiary is an affiliate organization of the MNC that is independently incorporated in the foreign country, and one in which the U.S. MNC owns at least 10 percent of the voting equity stock. A foreign subsidiary in which the U.S. MNC owns more than 10 percent but less than 50 percent of the voting equity is a minority foreign subsidiaty or an uncontrolled-foreign corporation. Active and passive forei
gn-source income derived from a minority foreign subsidiary is taxed in the United States only when remitted to the U.S. parent firm via a dividend. A foreign subsidiary in which the U.S. MNC owns more than 50 percent of the voting equity is a controlled foreign corporation. Active foreign source income from a controlled foreign corporation is taxed in the United States only as remitted to the U.S. parent, but passive income is taxed in the United States as Earned, even if it has not been repatriated to the parent. A more detailed discussion on controlled foreign corporations is rerved for later in this ction.
Exhibit 21.4:Foreign Tax Credit Calculations
| 芬兰 | 巴基斯坦 |
| 分公司 | 子公司 | 分公司 | 子公司 |
Foreign income tax rate | 26% | 26% | 35% | 35% |
Withholding tax rate | N/A | 5% | N/A | 8.75% |
Taxable income | 100 | 100 | 100 | 100 | 01年属啥
Foreign income tax | -26 | -26 | -35 | -35 |
Net available for remittance | 74云南旅游景点介绍 | 74 | 65 | 65 |
Withholding tax | 0 | -4 | 0 | -6 |
Net cash to U.S. parent | 71 | 70 | 65 | 59 |
Gross-up:income tax | 26 | 26 | 35 | 35 |
年度考核登记表个人总结怎么写Gross-up:Withholding tax | 0 | 4 | 0 | 6 |
U.S.taxable income | 100 | 100 | 100 | 100 |
U.S.income tax at 35% | 35 | 35 | 35 | 35 |
Less foreign tax credit: | | | | |
Income tax | -26 | -26 | -35 | -35 |
Withholding tax | 牛排沙拉0 | -4 | 0 | -6 |
Net U.S.tax(excess credit) | 9 | 5 | 0 | 美国学者（6） 刘伯温是哪里人 |
Total tax:Excess credit ud | 35 | 35 | 35 | 35 |
Total tax:Excess credit not ud | 35 | 35 | 35 | 41 |
| | | | |
Exhibit 21.4 prents examples of calculating the foreign tax credits for both a foreign branch and a wholly owned foreign subsidiary of a U.S. MNC in the host countries of Finland and Pakistan. The examples u the actual domestic marginal income tax rates prented in Exhibit 21.1 and the withholding tax treaty rates with respect to the United States. Both Finland and Pakistan tax foreign branch income at the same rate as domestic taxable income. The examples show the total tax liability for $100 of foreign taxable income when any excess foreign tax credits can be ud and when they cannot. As a rule, excess tax credits can be carried back one year and forward ten years. The examples assume that all after-tax foreign-source income available for remittance is immediately remitted to the U.S. parent.
他们是谁英语>志向的名言警句
