PORTFOLIO

Outbound Tax Planning for U.S. Multinational Corporations (6380)

Tax Management Portfolio, Outbound Tax Planning for U.S. Multinational Corporations, No. 6380, describes a comprehensive approach to international tax planning for U.S. multinational corporations.

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DESCRIPTION

This approach breaks down international tax planning into six steps. These steps balance the tax and treasury objectives of a U.S. multinational corporation in developing sustainable international tax strategies. Within the description of the steps, the Portfolio describes planning strategies, common issues, and business considerations of various structures. Most importantly, the Portfolio provides a U.S. multinational corporation a framework for approaching international tax planning throughout its lifecycle and the rapidly changing business environment.


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AUTHORS

The Outbound Tax Planning for U.S. Multinational Corporations Portfolio was authored by the following experts.
T. TIMOTHY TUERFF, ESQ.
T. Timothy Tuerff is Managing Partner-Washington National Tax in Deloitte's Washington National Office, serving U.S. multinational clients involved in cross-border transactions. His practice involves advising with respect to the structuring of international business operations, mergers and acquisitions, financing international operations, repatriation, and utilization of foreign tax credits. Mr. Tuerff formerly served as Special Assistant to the Chief Counsel and Special Assistant to the Associate Chief Counsel (International) of the Internal Revenue Service. He is a frequent contributor to tax periodicals, includingTax Management International Journal, Tax Notes and Tax Notes International, the Practicing Law Institute's Tax Planning for Domestic & Foreign Partnerships, LLCs, Joint Ventures & Other Strategic Alliances, and the International Franchising Journal. Mr. Tuerff is also a frequent speaker at seminars addressing current international tax issues. He regularly addresses such groups as the Tax Council Policy Institute, Tax Executives Institute, George Washington University – Internal Revenue Service Annual Institute on Current Issues in International Taxation, and the International Fiscal Association. Mr. Tuerff is a graduate of Indiana University School of Law and School of Business. He is a member of the American Bar Association and the District of Columbia Bar Association and is also a District of Columbia certified public accountant.

GRETCHEN T. SIERRA, ESQ.
Gretchen T. Sierra is Managing Partner-Washington National Tax — International Tax services in Deloitte's Washington National Office. She aids U.S. and foreign multinationals on a broad range of international tax matters, including supply chain structuring, IP migration, U.S. income tax treaties, inbound planning, financing transactions, and cross-border mergers and acquisitions. Prior to joining Deloitte in January 2009, Ms. Sierra was the Deputy International Tax Counsel in the Office of Tax Policy of the U.S. Treasury Department. As the Deputy International Tax Counsel, she had responsibility for a broad spectrum of U.S. tax treaty and international tax regulatory and legislative matters. Prior to joining the Treasury Department in 2005, she was a Legislation Counsel for the Joint Committee on Taxation, U.S. Congress, where she advised the House Ways & Means Committee, the Senate Finance Committee, and members of Congress on proposed international tax legislation, including the American Jobs Creation Act of 2004. She is a frequent lecturer on international tax topics and is an adjunct professor at Georgetown University Law Center.

CHRISTOPHER TRUMP, ESQ.
Christopher Trump is a Principal at Deloitte Tax LLP. Prior to joining Deloitte, Mr. Trump was the Assistant to the Branch Chief, Branch 4, in the Office of the Associate Chief Counsel (International). While with the Office of the Associate Chief Counsel (International), Mr. Trump specialized in international mergers and acquisitions and international tax issues involving partnerships. In addition, Mr. Trump had significant involvement in other areas, including foreign tax credits, foreign currency, and dual consolidated losses. With respect to dual consolidated losses, he acted as the primary author of the final regulations published in 2007. Mr. Trump also worked in the Office of the Associate Chief Counsel (Passthroughs & Special Industries). Mr. Trump received a B.A. in Religious Studies from the University of North Carolina at Chapel Hill. He earned his J.D., summa cum laude, from the North Carolina Central University School of Law. He obtained an LL.M. in Taxation from the University of Florida, Levin College of Law, where he was a Graduate Tax Scholar.

MARUTI R. NARAYAN, ESQ.
Maruti R. Narayan is a Senior Manager specializing in international tax in the Washington National Office of Deloitte. She consults on a broad range of international tax issues, including cross-border mergers and acquisitions, investment funds, international business structuring, inbound planning, foreign currency taxation, and foreign tax credit utilization. Ms. Narayan received a B.A., with distinction, from Yale University in Political Science. She is a graduate of the University of Virginia School of Law, where she served as a Managing Editor of the Virginia Tax Review. She is a member of the American Bar Association, the New York State Bar Association, and the District of Columbia Bar Association.

TABLE OF CONTENTS

Portfolio 6380-1st: Outbound Tax Planning for U.S. Multinational Corporations

Portfolio Description

Authors

Technical Advisors

Description

Detailed Analysis

I. Introduction

A. Scope of Portfolio

B. Individuals, Partnerships, and S Corporations

II. Overview of Outbound Tax Planning for U.S. Multinational Corporations

A. Comprehensive Approach to Tax Planning

B. Establishing a Planning Framework

C. Building the Factual Foundation

D. Effective Tax Rate

III. Reduction of U.S. Taxable Income

Introductory Material

A. Utilization of Foreign Losses to Reduce U.S. Taxable Income

1. Branch Operations

2. Dual Consolidated Losses

3. Inbound Liquidations of Loss-Generating Businesses

a. Section 367(b)

b. Inbound Liquidations and Dual Consolidated Losses

c. Foreign Currency Issues

d. Asset Basis

e. Worthless Stock Deductions — § 165(g)(3)

f. Bad Debt Deductions — § 166

B. Captive Insurance Companies

C. State Income Tax Reduction

D. Expansion of Foreign Operations — U.S. Corporation Transfers Assets to a Foreign Corporation

1. Tainted Property Excluded from the Foreign Business Asset Exception

2. Transfer of Intangible Assets

3. Recapture of Branch Losses

E. Inversion

IV. Foreign Tax Reduction

Introductory Material

A. Local Country Tax Incentives

B. Reduction of Withholding Taxes — Impact on Corporate Structure

C. Financing Cross-Border Investments

1. Direct Loan from U.S. Parent to Controlled Foreign Corporation

2. U.S. Loans to Disregarded Entity Acting as Parent of a Foreign Combined Group

3. U.S. Parent Finances Controlled Foreign Corporation with a Hybrid Instrument

4. U.S. Parent Funds a Controlled Foreign Corporation Finance Company

a. General Rules

b. Exceptions to Subpart F

(1) Controlled Foreign Corporation Look-Through Treatment — § 954(c)(6)

(2) Same Country Exception — § 954(c)(3)

(3) High-Tax Exception — § 954(b)(4)

(4) De Minimis Exception — § 954(b)(3)(A)

5. U.S. Parent Finances Controlled Foreign Corporation Holding Company Operating Through Disregarded Entities

6. Third-Party Financing of Controlled Foreign Corporations

7. Foreign Currency Gains and Losses Resulting from Intercompany Lending

a. Applicable Rules Under § 988

b. Rules Applicable to Nonfunctional Currency Denominated Debt

(1) Holders of Nonfunctional Currency Debt Instruments

(2) Obligors of Nonfunctional Currency Debt Instruments

c. Exchange Gain or Loss on Accrued Items Other than Interest

d. Exchange Gain or Loss on Disposition of Nonfunctional Currency

e. Treatment of § 988 Gain or Loss as Subpart F Income

D. Controlled Foreign Corporations Engaged in Active Business Operations

1. Subpart F in General

a. Foreign Personal Holding Company Income

b. Foreign Base Company Sales Income

c. Foreign Base Company Services Income

2. Controlled Foreign Corporations Engaged in Active Sales Operations

a. Controlled Foreign Corporations Engaged in the Manufacture of Tangible Personal Property

(1) In General

(2) Use of Contract Manufacturers

(3) Foreign Base Company Sales Income — The Branch Rule

(a) Sales Branch Rule

(b) Manufacturing Branch Rule

b. Tax-Effective Planning for the Manufacturing Supply Chain

(1) Unrelated Party Purchase and Sales

(2) Same Country Manufacturing Exception

(3) Product Purchased by Local Country Sales Affiliate

(4) Unrelated Party Purchase and Toll Manufacturer

(5) Low-Tax Controlled Foreign Corporation Operating Through Branches

(6) High-Tax Distributors

3. Global Service Businesses and Foreign Base Company Services Income

4. Other Exceptions for Interest, Rents, and Royalties

a. Active Financing Exception — § 954(h)

b. Rental Income Received from Active Leasing

c. Royalty Income Received from Active Licensing

5. Subpart F and Partnerships, Generally

a. Controlled Foreign Corporation's Distributive Share of Partnership Income: Brown Group Regulations

b. Subpart F Consequences of a U.S. Partnership Owning a Controlled Foreign Corporation

c. Foreign Tax Credits

d. Look-Through Rule on Sale of Partnership Interest

e. Section 1248 and Partnerships

(1) Section 1248 Treatment of Sale of Controlled Foreign Corporation Interest by Domestic Partnership

(2) Section 1248 Treatment of Sale of Controlled Foreign Corporation Interest by Foreign Partnership

(3) Sale of Interest in U.S. Partnership Holding Controlled Foreign Corporation

(4) Sale of Interest in Foreign Partnership Holding Controlled Foreign Corporation

V. Tax-Efficient Utilization of Foreign Tax Credits

Introductory Material

A. Foreign Tax Credit Basics

1. Electing To Claim the Foreign Tax Credit

2. Creditable Foreign Income Taxes

a. In General

b. The Tax Requirement

c. The Income Tax Requirement

3. Section 902 Indirect Credits

4. Developments that May Restrict Use of Foreign Tax Credits

a. Final Technical Taxpayer Regulations

b. Exclusive List of Splitter Arrangements

c. Rules for Applying § 909 to Split Taxes and Related Income

5. Section 904 and the Capacity to Claim a Foreign Tax Credit

B. Maximizing Foreign-Source General Limitation Income

1. Dividends

2. Deemed Dividend Transactions

3. Section 1248 Deemed Dividends

4. Section 956

5. Interest

6. Royalties

7. Sales vs. Licenses

a. Sourcing Impact of Characterization

b. Determining Place of Use

c. Special Considerations

(1) Section 197

(2) Royalties — § 904 Category

8. Income from the Sale of Real Property

9. Income from the Sale of Personal Property

10. Inventory Sales

a. Strategic Planning for the Sale of Property

b. Modifying Title Passage

c. Planning for Manufactured Inventory Property

d. Use of Sales Affiliates

e. Partnerships

11. Payments for the Performance of Services

a. Determining Character of Income

b. Place of Performance

12. Special Rules

13. Sourcing by Analogy or Substitution

14. Look-Through Rules

C. Allocation of Deductions to Categories of Income

1. Section 861 — Allocation and Apportionment of Deductions

2. Interest Allocation

3. Leasing Assets

4. Research and Experimental Expenditures

a. Overview of Apportionment Methodology

b. Exclusive Apportionment

c. Remaining Apportionment — Sales and Gross Income Methods

(1) Sales Method

(2) Gross Income Method

(3) Binding Election

5. Special Rules for State Tax Deductions

6. Special Rules for Charitable Contributions

7. Stewardship Expenses

8. Legal and Accounting Fees

9. Losses on Dispositions of Property

10. Net Operating Loss Allocation and § 904

11. Impact of Overall Foreign Loss on Restructuring

12. Overall Domestic Loss Under § 904(g)

VI. Restructuring Controlled Foreign Corporation Operations and Impact on Planning

Introductory Material

A. Creation of a Holding Company

1. CFC to CFC Asset Reorganization

2. CFC to CFC Liquidation

B. Deemed Dividend Transactions

1. Sale of CFC Stock from U.S. Parent to CFC Holding Company in a § 304 Transaction

2. Sale of CFC Stock Up the Chain of Ownership

3. D Reorganization with Boot

4. Inbound Liquidations and Asset Reorganizations

5. Spin-off Transactions

VII. Treasury Functions of the U.S. Multinational Corporation

Introductory Material

A. Holding Company with Disregarded Entities

B. Holding Company with Subsidiaries

VIII. Repatriation Overview

Introductory Material

A. Annual Repatriation Transactions

1. Deductible Payments

2. Funding Stock Option Obligations

3. Cost Sharing Payments

4. Distributions of Previously Taxed Income

5. Factoring Receivables

6. Transfer Pricing for Goods and Services

B. Structural Repatriation Transactions

1. Repayment of Debt

2. Return of Capital Distribution

3. Section 956 Loans

4. Controlled Foreign Corporation Deficits and § 902 Deemed Paid Credits

5. Section 338 Election for Acquired Controlled Foreign Corporation

C. Situational Transactions

1. Section 304 Stock Sale

2. D Reorganization Transaction

a. Comparison of § 304 and D Reorganization Transactions

b. Reorganization Traps

3. Purchase of Branch Assets

IX. Guideposts for Affirmative Planning


WORKING PAPERS

Working Papers

Table of Worksheets

Worksheet 1 Planning Matrix for U.S. Multinational Corporations

Worksheet 2 Comparison of Latin America and Caribbean Holding Company Regimes

Worksheet 3 Comparison of European Holding Company Regimes

Worksheet 4 Comparison of Asia Pacific Holding Company Regimes

Bibliography

ARTICLES

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