Title: Example of Recommended Outline Fromat
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Title: Example of Recommended Outline Fromat
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Language: English
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Spatial Coverage: North America -- United States of America -- Florida
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Abstract: Jake Varn Collection - Example of Recommended Outline Fromat (JDV Box 89)
General Note: Box 19, Folder 5 ( Chamber Growth Management - Water Wars - 1991 ), Item 4
Funding: Digitized by the Legal Technology Institute in the Levin College of Law at the University of Florida.
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Full Text



















EXAMPLE OF RECOMMENDED
OUTLINE FORMAT









FOREIGN INVESTMENTS IN THE UNITED STATES

Leon 0. Stock
Miami

Up to this point, consideration has been
given principally to the tax implications of
United States persons making investments and
engaging in transactions outside the United
States -- so called outbound investments and
transactions. We will now consider the other
side of the coin -- foreign persons making
investments and engaging in transactions in
the United States -- the inbound version.

I. Foreign Corporation Directly Con-
ducting a Business in the United States
Through a Branch

A. The net income of the branch is
subject to the United States corporate income
tax to the same extent as a domestic corpora-
tion similarly engaged.

B. Remittances of branch profits to
the head offices of the foreign corporation
of which it is a part are not subject to
United States withholding tax.

C. Dividends by the foreign corpora-
tion to its non-U.S. shareholders are subject
to the United States withholding tax of 30%
of the gross income of the U.S. branch income
is equal to, or greater than 50% of the
foreign corporation's total gross income
from all sources for the statutorily resolved
period. See Code Sections 861(a)(2)(B) and
1441.

D. However, this withholding tax is
not applicable irrespective of the income
percentage if the foreign corporation is in
a country with which the United States has a
tax treaty under which dividends by such





foreign corporation are specifically exempted
from United States tax -- for example, Arti-
cle XII of the United States-Netherlands
Antilles Treaty.
E. Illustrations:
1. Corporation X, incorporated
in the Netherlands Antilles, conducts a manu-
facturing operation in the United States
through an unincorporated branch. It also
sells the product it manufactures to distri-
butors in the United States. Even though it
derives all of its income from the business
in the United States, dividends paid to its
non-U.S. shareholders are not subject to the
United States withholding tax by virtue of
Article XII of the applicable Tax Treaty.
2. Assume the same facts as those
in 1. above, except that Corporation X is a
Panamanian corporation. Dividends distribu-
ted by Corporation X to its non-U.S. share-
holders are subject to the United States
withholding tax of 30%.
3. Assume the same facts as
those in 2. above, except that 60% of Corpor-
ation X's total gross income is derived from
sales of the United States manufactured pro-
ducts in Central America. Dividends distri-
buted by Corporation X to its non-U.S. share-
holders are not subject to the United States
withholding tax unless section 864(c)(4)(iii)
applies.
That section provided that income derived
from foreign sales of inventory, or properly
held for sales to customers, through an
officer or other place of business in the
United States is to be treated as effectively
connected with a United States business and
subjected to tax, unless it can be demon-
strated tht one or more foreign offices par-
ticipated materially in the making of such
sales.


i-








4. Assume the same facts as those
in 2. above, plus the additional fact that
Corporation X is capitalized by the non-U.S.
investors on the basis of debt as well as
shares, say $3.00 of interest bearing debt
for each $1.00 of paid in equity capital.
The United States tax implications should
be as follows:

a. The interest expenses, if
reasonable and paid timely, should be deduc-
tible in computing the branch's net income
subject to United States corporate taxation.
See section 267(a)(2), and proposed Regula-
tions under section 385.

b. Payment of the interest
to the non-U.S. shareholders/creditor would
be subject to the United States withholding
tax of 30%. See section 861(a)(1)(b).

5. There would be no United
States withholding tax if Corporation X were
a Netherlands Antilles corporation by virtue
of Article XII of the Tax Treaty, or if
Corporation X derived less than 50% of its
total gross income from the United States
branah business. See section 861(a)(1)(c).

F. In those instances in which
dividends, if paid, would be subject to the
United States withholding tax, for example,
a Panamanian corporation deriving 50% or
more of its total gross income from a business
conducted in the United States, the possible
applicability of the additional corporate
tax assessable under section 531 should be
considered.

1. Under the current regulations
in effect almost as long as the statutory
provision itself, the tax may be imposed
where the facts indicate that income has been
accumulated rather than distributed as








dividends in order to prevent the imposition
of tax on the individual shareholders.

2. Under the proposed regulation,
if enacted, the tax would be imposed if the
purpose was to prevent the imposition of tax
on either the individual or the corporate
shareholder.

G. The tax could not properly be
imposed in the case of a Netherlands Antilles
corporation since Article XII dividends, if
paid, would not be subject to the United
States withholding tax. Also, in the case
of a foreign corporation deriving less than
50% from its loaned business in the United
States.

H. Observation: The current regula-
tion has been on the books for many years. A
reading of section 531 indicates that the
long-standing interpretation is reasonable
and correct. Why, it might be inquired, is
the interpretation being expanded after all
these years to include the avoidance of the
withholding tax in respect to corporation as
well as individual shareholders? It is sub-
mitted that the answer is to be found in the
desire to maximize the collection of tax, and
not in an objective interpretation. The in-
crease in foreign investments in the United
States is the obvious motivation for the pro-
posal. It should be repeated at a more
responsible level of the administration.

II. Foreign Corporation Conducting a
Business in the United States through a
United States Subsidiary

A. The net income of the subsidiary
is subject to the United States corporate
tax.








B. Dividends distributed by the sub-
sidiary to its foreign parent are subject to
the United States withholding tax of 30%, or
such lesser rate of tax as might be applicable
under a Tax Treaty. It will be recalled that
remittances from a United States unincorpor-
ated branch are not subject to withholding tax
as they are in Canada and other foreign
countries.

C. Under the existing Section 531
regulations, the accumulation of earnings in
the United States subsidiary could not be the
basis for the imposition of the Section 531
tax, since the recipient of dividends, if
paid, would be a corporate, and not an indi-
vidual, shareholder. Under the proposed
regulations, the tax could be assessed, in
appropriate circumstances, even though the
shareholder is a corporation.

D. If the corporate parent has been
incorporated in a Tax Treaty Country, for
example, in the Netherlands Antilles, of the
Netherlands, and the applicable United States
withholding rate on dividends paid by the
United States subsidiary is 5%, it is not
likely that the tax would be assessed against
the subsidiary even if the proposed section
531 regulations were adopted. Avoided a 5%
tax by accumulating earnings would not appear
sufficient to evidence the interdicted pur-
pose referred to in section 531.

E. Interest on debt owing by the
United States subsidiary to its foreign
parent, if reasonable, would constitute a
deductible expense, but would be subject to
the United States withholding tax of 30%, or
such lesser rate down to zero as might be
prescribed under an applicable Tax Treaty.
See Section 385, and the proposed regulation
thereunder.


---IIIC--- ---I--~~C*- c-C~








III. Nonresident Aliens Investing in the
United States

A. Bank Accounts: Interest received
on deposits wilt United States banks, savings
and loan associations, and insurance compan-
ies, not effectively connected with a business
in the United States, is exempt from the
United States withholding tax. See Section
861(a)(1)(A) and (C).

B. Net Capital Gains: Short or long
term, not effectively connected with a United
States business, are exempt from United
States taxation, unless the nonresident alien
is in the United States for an aggregate of
183 days during the taxable year in which the
net gains are realized, in which event such
net gains are subject to a tax of 30%.

C. Discretionary Power Re Investments:

1. A nonresident alien is not
regarded as engaged in business merely because
he trades in stock and securities in the
United States through a resident broker, com-
mission agent, or employee, even if such per-
sons have been given the discretionary power
to select investments. See Section 864(b)(2).

2. This same rule applies to a
foreign corporation, other than a personal
holding company except for sections 542(c)(7)
or 543(b)(1)(C), trading for its own account,
provided its principal office is not in the
United States. The absence of an office in
the United States also is required in the
case of a nonresident alien individual.





















EXAMPLE OF INSUFFICIENT
OUTLINE FORMAT







FOREIGN INVESTMENTS IN THE UNITED STATES


I. Foreign Corporations Directly Con-
ducting a Business in the United States
Through a Branch

A. Net Income

B. Remittances of Branch Profits

C. Dividends by Foreign Corporations

D. Tax Treaty

E. Illustrations

F. Dividends Subject to Tax

1. Current Regulations .
2. Proposed Regulations

G. Netherlands Antilles Corporation

H. Observations

II. Foreign Corporation Conducting a
Business in the United States through a
United States Subsidiary

A. Net Income

B. Dividends by Subsidiary

C. Section 531

D. Tax Treaty Corporate Parent

E. Dividends by Corporate Parent

F. Interest on Debt of Subsidiary

III. Nonresident Aliens Investing in the
United States







A. Bank Accounts

B. Net Capital Gains

C. Discretionary Power Re Investments

1. Stock and Securities
2. Foreign Corporation's Own
Account




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