International Taxation

Chapter 7Inbound Taxation: U.S. Withholding Tax & Tax Treaty Concepts

Learning objectives

• Identify select high-level inbound tax issues.
  • Recognize annual interest expense limitations under Section 163(j), modified by the Tax Cuts and Jobs Act (TCJA).
  • Recognize the base erosion anti-abuse tax (BEAT) concept.
  • Recognize the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA), Section 897.
• Identify chapter 3 withholding tax rules.
• Recognize chapter 4 Foreign Account Tax Compliance Act (FATCA) withholding rules.
• Recognize high-level tax treaty issues.

Executive summary

A comprehensive view of U.S. inbound taxation is covered in a separate course, U.S. Inbound Taxation (USIT). This chapter provides an overview of the salient and recurring issues within inbound taxation, such as the capitalization or financing of the U.S. subsidiary and corresponding (new) interest expense limitation under Section 163(j); the BEAT provision under Section 59A; Section 897 FIRPTA (U.S. real estate) withholding tax rules; chapter 3 (regular) withholding tax rules; chapter 4 FATCA withholding rules; and an overview of tax treaty concepts and terms.

Chapter 3 (regular or normal withholding tax rules for all industries) of the Internal Revenue Code (IRC) provides that U.S. payors or withholding agents must report and withhold 30% withholding tax on certain U.S. source payments to foreign persons or entities. There are tax treaty exemptions and reductions as well as a few code-based exemptions ...