TAX 9869 Lecture Notes - Lecture 32: Payment, Trade Finance, Withholding Tax

27 views6 pages

scarletsnail973

17 Jul 2020

School

Department

Course

Professor

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

Branch basket - example: reallocation of gross income to foreign branch. Assume that if the disregarded payment of made by usp to foreign. Branch were an actual deduction, it would be allocated and apportioned to. Usp"s general basket foreign source gross income: usp"s general basket foreign source gross income of is reallocated to foreign branch, that of general basket foreign source gross income is attributable to foreign branch (and constitutes foreign branch income ) Look-through rules: the final regulations provides look-through rules with respect to interest, rents, royalties, dividends, and inclusions under section 951(a)(1) and. How do you define which income goes into general limitation basket and which goes in the passive category basket: passive basket = passive income, passive income is generally defined as dividends/interest/rent/royalties/passive income/investment type of income. Income + taxes will move: for our purposes/exam: if you see div/interest/rent assume going in passive basket, section 904= limitation rule, be wary of exceptions.

Related Questions

Q1. Import quotas are
a. methods for reducing imports by limiting the quantity of goods that can enter the country each year
b. voluntary agreements by exporting countries to limit sales in a foreign country
c. subsidies to foreign producers to encourage them to trade
d. none of these

Q2. Devices that set up multiple exchange rates between the currencies of two nations are known as
a. tariff quotas
b. export subsidies
c. exchange controls
d. variable currencies

Q3. The international organization that replaced the General Agreement on Tariffs and Trade (GATT) is the
a. World Bank
b. Export-Import Bank
c. World Trade Organization
d. International Monetary Fund

Q4. Dumping refers to the practice of
a. flooding a foreign market with large quantities of a good
b. selling a product abroad at a price below cost or below the domestic price
c. exporting inexpensive products to foreign countries
d. selling surplus goods abroad with counterfeit brand names

Q5. Countries engage in trade because
a. the exchange is mutually beneficial
b. governments force industries to exchange
c. international law dictates that exchange must take place
d. all of these

Q6. According to the U. S. Department of Commerce, all persons, unrelated or related, who occupy a housing unit comprise
a. a family unit
b. a household
c. an extended family unit
d. group living

Q7. A country with an equal distribution of income will have a higher standard of living than a country with a more unequal distribution of income.
a. true
b. false

Q8. Welfare caseloads tend to fluctuate with
a. business cycles
b. weather
c. stock markets
d. minimum wage rates

Q9. The official poverty threshold line is adjusted annually for
a. income taxes
b. inflation
c. average household size
d. average family size

Q10. For many welfare recipients, taking a job reduces income.
a. true
b. false

Q11. It is true that a stable economy occurs when
a. total injections into the circular flow are large enough to make up for government tax leakages
b. total leakages from the circular flow are great enough to offset the effects of government spending
c. total planned leakages from the circular flow are exactly equal to total planned injections into the circular flow
d. actual saving is equal to planned investment

Q12. The measure of income received by persons from all sources is known as
a. personal income
b. national income
c. gross domestic product
d. net national product

Q13. Discharges of chemicals from a paper plant that pollute a nearby river represent an example of
a. internal costs
b. the underground economy
c. social costs
d. transfer costs

coralrabbit244

1.( T or F ) An individual who directly owns real estate andearns net rental income for the tax year January 1 â December 31,2018 will have an effective tax rate of 29.6% on it.

2.( T or F ) Jumbo LLC, is treated as a partnership and is ownedby 50% by two individuals, Rod and Tom. Jumbo LLC acquired BighornCenter, an industrial rental property for $2 million and collectsrent from tenants. When Bighorn Centerâs value increases to $3million, Jumbo refinances the debt and distributes $500,000 to bothRod and Tom. Rod and Tom treat the $500,000 as ordinary incomesubject to a 39.6% tax rate.

3.( T or F ) A gain resulting from the sale of REIT shares whenthat REIT is domestically controlled will not result in any U.S.federal income tax withholding for non-U.S. holders of the REITstock.

4.( T or F ) A general partnership can be taxed as a corporationif so elected under the check the box rules.

5.( T or F ) An individual investor can own 100% of a REIT.

6.( T or F ) Since dividends are not UBTI, a tax exempt investorwill not have UBTI on dividend income when debt is used to purchasethe stock that paid the dividend.

7.(T or F) An individual, who qualifies as a real estateprofessional, can treat a particular rental real estate activity asnon-passive even when that individual does not materiallyparticipate in the real estate activity.

8.(T or F) Withholding tax to non-US investors on interestincome and dividends may be reduced under the terms of atreaty.

9. Assume a building, owned by a REIT, increases invalue and the REIT that owns it sells the building for $120 millionand then makes a capital gain distribution to its shareholders.Which of the following is true regarding a U.S. individualinvestor's tax treatment:

A. The gain on the sale will be taxed at the ordinary income taxrate.

B. The gain on the sale will be taxed at the capital gain taxrate.

C. There is no tax on the net gain at the shareholder level.

D. The tax treatment is the same for the US investor as it isfor the foreign investor.

E. None of the above.

11. Provide the tax that would be applied for each ofthe following:

1. Withholding tax on passive-typeincome (interest, dividends, etc..) for non-US investors withrespect to US source income. _______________.

2. Tax imposed on a foreigncorporation based on a deemed distribution of US branchoperations____________________.

3. Withholding tax on US businessincome income that is effectively connected with a United Statestrade or business. ______________.

13. Which of the following would cause the largestproblem for an individual who wants to be taxed as a real estateprofessional (which one would be the most difficult to overcome ifan individual wanted to be treated as a real estateprofessional)?

A. The individual owns only rental real estate properties andspends all of his/her time managing them.
B. The individual works for herself as a commissioned real estatebroker and invests in one rental property on the side.

C. The individual works full time for a company that is activein a real estate trade or business (periodically requiringovertime) but has no ownership in the company.

D. The individual owns and operates a hotel where she spends2,000 hours per year and she also invests in a small portfolio ofrental real estate properties.

E. None of the above would cause problems for an individual tobe classified as a real estate professional.

14. What are the highest tax rates for each of thefollowing scenarios?

____. Operating income from a hotel earned by a foreigncorporation (excluding branch profits tax)

____. Interest income earned by a foreign corporationfrom a US borrower

____. Net rental income earned by an U.S. individual(exclude the passthrough deduction)

____. Capital gain earned by an U.S.individual

____. Interest income earned by a U.S.corporation

____. Capital gain earned by an U.S.corporation

____. Depreciation recapture on the sale of U.S. realestate (Section 1250 property) for an individual

____. Depreciation recapture on the sale of U.S. realestate (Section 1245 property) for an individual

15. Identify the following as "ECI" (effectivelyconnected income) or "Not ECI" (not effectively connected income)if earned by a foreign person:

________Rental income from an actively managed storage center inFlorida

________ Interest income from loans to non-U.S. corporateborrowers.

________ A gain on the sale of a shopping center located inBermuda.

After reading the case that is below, how can a foreign company entering China ensure that it tackles the most important little things that end up being huge barriers to success as we approach the year 2020 when China is expected to have significantly increased purchasing power among its middle class? Write your opinion, as a manager, on how to face cultural issues like those described in the case, when entering foreign markets.

The People's Republic of China opened up to foreign investments in the late 1970s. Since that time, numerous companies have tried to establish operations and sell their products to customers in China. Many more companies will try in the years to come China is expected to have some 190 million people in the middle- and upper-income categories by 2020. This is an increase from only about 17 million people in these income brackets as recently as in 2010. China's purchasing power for virtually all products and services has strong potential, and foreign companies will seek these market opportunities. What have we learned culturally that can help Western-based companies in China's marketplace?

Some background on China can serve as a starting point for a better understanding of the culture in China and what some well-known companies such as Best Buy and eBay have done to target the Chinese marketplace. The motivation for many foreign companies to enter China beyond those that have been there for a few decades for reasons of low-cost production was the triple growth of the Chinese economy that was seen from 2000 to 2010. China overtook Japan to become the second-largest economy in the world behind only the United States, and its large population makes for an enormous target market. Investment from foreign companies was the largest driver of China's growth in the decade from 2000 to 2010. However, many companies also increased their exports to China. The United States, for example, saw its companies increase exports to China by 542 percent from 2000 to 2011 (from about $16.2 billion to $103.9 billion), while total exports to the rest of the world increased by only 80 percent in the same time period.

Interestingly, while foreign investments grew, domestic consumption as a share of the Chinese economy declined from 46 percent in 2000 to 33 percent in 2010. This consumption declineâcoupled with slower growth globally and, ultimately, the worldwide economic downturn that started in 2008âraised questions about China's momentum. Right now, around 85 percent of mainstream Chinese consumers are living in the top 100 wealthiest cities. By the year 2020, these advanced and developing cities will have relatively few customers who are lower than the middle- and upper-income brackets by Chinese standards. The expectation is that these consumers will be able to afford a range of products and services, such as flat-screen televisions and overseas travel, making the Chinese customer much more of a target for a wide variety of consumption. This begs the question, can the unprecedented Chinese growth really continue, and would it come from increased consumption?

The resounding answer is yes according to research conducted by McKinsey & Company. McKinsey found that barring another major economic shock similar to what we saw in 2008, China's gross domestic product (GDP) will continue to grow, albeit not at the historic levels seen between 2000 and 2010 when it grew about 10.4 percent annually. The growth from 2010 to 2020 is expected to be about 7.9 percent per year, which is still far above the expected growth for the United States (2.8 percent annually), Japan (1.2 percent annually), and Germany (1.7 percent annually) the three countries among the top four worldwide economies along with China. And, the key is that consumption will now be the driving force behind the growth instead of foreign investment. The consumption forecast opens up opportunities for foreign companies to engage with Chinese consumers who are expected to have more purchasing power and discretionary spending. But culturally translating market success from one country or even a large number of countries to the Chinese marketplace is not necessarily as straightforward as it may seem. Often, a combination of naivety, arrogance, and cultural misunderstanding has led many well-known companies to fail in China. Lack of an understanding of issues such as local demands, buying habits, consumption values, and Chinese customers' personal beliefs led to struggles for companies that had been very successful elsewhere in the world. Let's take a brief look at Best Buy and eBay as two examples.

Best Buy, the mega-store mainly focused on consumer electronics, was founded in 1966 as an audio specialty store. Best Buy entered China in 2006 by acquiring a majority interest in China's fourth-largest appliance retailer, Jiangsu Five Star Appliance, for $180 million. But culture shock hit Best Buy, best described by Shaun Rein, the founder of China Market Research Group. He pointed to a few reasons for this culture shock and lack of success. First, the Chinese will not pay for Best Buy's overly expensive products unless they are a brand like Apple. Second, there is too much piracy in the Chinese market, and this reduces the demand for electronics products at competitive market prices. Third, like many Europeans, the Chinese do not want to shop at huge mega-stores. So, these three seemingly easy-to-understand cultural issues created difficulties for Best Buy. Solving these issues, Best Buy believed that it would have to develop and implement a different business model for the Chinese market than it has used, for example, in the United States. Now, how far should a company go outside its normal business model to adhere to the cultural values and beliefs of a new market? Strategically moving forward, Best Buy opted to close all of its Best Buy branded stores in China and focus on its wholly-owned local Jiangsu Five Star chain of stores. But will this new strategic business model be successful with the new makeup of customers in China expected by 2020?

eBay, the popular e-business site focused on consumer-to-consumer purchases, was founded in 1995. The company was one of the true success stories that lived through the dot-com bubble in the 1990s. It is now a multi-billion-dollar business with operations in more than 30 countries. But China's unique culture created problems for eBay in that market. Contrary to the widespread cultural issues that faced Best Buy, one company in particular (TaoBao) and one feature more specifically (built-in instant messaging) shaped a lot of the problems that eBay ran into in China. Some 200 million shoppers are using TaoBao to buy products, and the company accounts for almost 80 percent of online transaction value in China. Uniquely, TaoBao's built-in instant messaging system has been cited as the main reason for its edge over eBay in China. Basically, customers wanted to be able to identify a seller's online status and communicate with them directly and easily function not seamlessly incorporated into eBay's China system. Clearly, built-in instant text messaging is a solvable obstacle in doing business in China. It sounds easy now when we know about it, but may not always be the case when we take into account all the little things that are important in a market.

brownox314

TAX 9869 Lecture Notes - Lecture 32: Payment, Trade Finance, Withholding Tax

Document Summary

Get access

Related Documents

TAX 9869 Lecture Notes - Lecture 42: Make America Great Again, Tax Deduction, S Corporation

TAX 9869 Lecture Notes - Lecture 55: Tax Treaty, Qualified Dividend, Ordinary Income

TAX 9869 Lecture Notes - Lecture 46: Investment, Withholding Tax, Tax Treaty

Related Questions