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Have You Assessed Your USTB/PE Position Lately? Now Is the Time for a Check-up


The Joint Committee on Taxation recently released a report highlighting the growth in foreign investment in the US over the past two decades, resulting in the IRS turning its focus to foreign investors to capture additional revenue. This may come in the form of new legislation, such as the Stop Tax Haven Abuse Act, but also by intensifying the IRS enforcement procedures for foreign taxpayers potentially doing business in the United States.

Taxand US gives its view on this issue and how it may affect a foreign business if it does not keep up to date with its tax obligations.

Many foreign taxpayers may not be fully aware of the impact that a USTB/PE audit adjustment may have on their bottom line. Effectively, the IRS may claim the authority to impose gross taxation on business income that would have otherwise been taxed on a net basis if an income tax return had been filed by the foreign corporation. Below is an idea of activities that should cause the foreign corporation to submit to a check-up:

  • Maintaining an agent, who performs US activities on behalf of the foreign person
  • Performing services (consulting, technical or otherwise) within the US
  • Owning an interest in a fiscally transparent entity that is itself engaged in a USTB
  • Engaging in construction projects in the United States
  • Managing, in an active manner, US real estate for income-producing purposes
  • Maintaining inventory in the US under certain arrangements (i.e., consignments)
  • Selling goods in the US where any sales activities are conducted within the United States
  • Managing a business in the United States
  • Soliciting sales in the United States

Learn more about your USTB/PE position from Taxand US

Taxand's Take

Generally, when a foreign corporation commences operations in the US, an initial assessment is made as to whether a USTB or PE has been established. Over time, the extent of these activities may vary. If you have been charged with the responsibility of ensuring the US income tax compliance of a foreign corporation with US activities, it is important to subject the foreign corporation to an annual check-up of its USTB or PE health. Pay close attention to whether the quantity and/or quality of the foreign corporation's US activities has changed over the year and discuss the impact of any changes with your US tax advisor. Carefully consider any information in the public domain that might draw the IRS's attention to potential USTB or PE issues.

Your Taxand contacts for further queries are:
Juan Ferrucho
T. + 1 305 704 6670

Silvia Flores
T. + 1 305 704 6724

Kenneth Dettman
T. +1 305 704 6691

Taxand's Take Author