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Foreign Affiliates and Combined Reporting

USA

Do your foreign affiliates earn income from sources within the United States but otherwise do not have a presence in the US? Do you think you are not subject to state income tax? Then this article is a must read for you. Unlike US federal and international tax law, the concepts of "US trade or business" and "permanent establishment" generally do not apply when determining if a state has jurisdiction to tax a foreign entity. In addition, not all states follow the federal rules for treaty-based return positions. Rather, a state may use its own rules (limited only by the US Constitution) for determining if it has jurisdiction either to subject a foreign entity to tax or to include a foreign entity's activity within the state's tax base. Therefore, it is not uncommon for foreign entities to suddenly find themselves subject to a particular state's taxing jurisdiction, even though they may not have a US federal corporate income tax filing requirement. Taxand US evaluates methods that states can take to increase tax collections.

Taxand's Take


The application of state corporate income tax rules to foreign entities is a daunting task, as the US federal tax concepts often do not apply. Although a foreign entity may not have a filing requirement for US federal income tax purposes, it may nonetheless have a requirement for state income tax purposes. Before your foreign affiliate starts conducting any business in the US, with physical presence or not, it is imperative that you become aware of these state tax rules to avoid falling into any pitfalls along the way. Read the full article from Taxand US here

Your Taxand contact for further queries is:
Benjamin Diaz
T. +1 305 704 6650
E. bdiaz@alvarezandmarsal.com

Taxand's Take Author