Foreign Tax Credit
home country credit against domestic income tax for foreign taxes already paid on foreign-source earnings. credit given to corporations who pay any taxes outside of the U.S., this is limited to the current U.S. tax rate, but overages can be rolled over to
Effective Tax Rate
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Corporate tax rate
corporations are taxed on worldwide income, but foreign income isn't taxed until it is repatriated, unless it is Subpart F Income
Exception to corporate tax general rule
Foreign Income is not taxed in US until repatriated back to US
Subpart F income
special category of foreign-source "unearned" income that is currently taxed by the IRS regardless of whether it is remitted back to the United States (except to the exception)
Intercompany transactions
transactions, such as a loan, carried out between two units of the same corporation
Transfer pricing
the price at which one unit of a firm sells goods or services to an affiliated unit
Arm's Length Price
a price that a willing buyer and an unrelated willing seller would freely agree to transact
Strategies for repatriating money back
dividends (this will incur the most taxes), intercompany loans, management fees, royalty fees, agency fees, licensing fees, administrative fees, marketing fees, etc
Back-to-back loan (intercompany loan)
also called fronting loans or link financing, an intercompany loan that is channeled through a bank. Purpose: to get money into a country while avoiding currency controls or expropriation danger etc. The parent company deposits the money in a bank in thei
Parallel loan (intercompany loan)
a simultaneous borrowing and lending operation, usually involving four related parties in two different countries. Purpose: to circumvent any control or restrictions, reduce exchange rate risk
Strategy for minimizing taxes
shift income from high tax jurisdiction to low tax jurisdiction
Swap
a foreign exchange transaction that combines a spot and a forward contract, more generally, it refers to a financial transaction in which two counterparties agree to exchange streams of payments over time, such as in a currency swap or an interest rate sw
Maximize shareholder value
by increasing stock price and reducing costs through Labor, Raw materials, Taxes