Subsidiary vs. Branch | International Business Tax Lawyer Minneapolis

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For the purposes of US international tax laws, it is very important to distinguish a subsidiary from a branch. Let’s define both terms in this short essay.

Subsidiary vs. Branch: Definition of a Branch

A branch is a direct form of doing business by a corporation in another country where the corporation retains the direct title of the assets used in the branch’s business. In other words, a branch is a direct extension of the corporation to another country.

Most importantly, there is no separate legal identity between a corporation’s branch in one country and its head office in another. It is all the same company doing business in two countries.

One of the practical advantages of a branch is that it usually requires a lot less effort to establish a branch than a subsidiary. However, it is not always the case – for example, in Kazakhstan, creation of a branch is a very formal process. Moreover, while the legal formalities may not be that complicated, the tax consequences of having a branch in another country may be far more complex.

Subsidiary vs. Branch: Definition of a Subsidiary

A subsidiary is a complete opposite of a branch. It is a separately-chartered foreign corporation owned by a US parent corporation. In other words, a subsidiary has its own legal identity separate from that of its parent US corporation. In the eyes of a local jurisdiction, the US corporation is merely a shareholder of its foreign subsidiary; the US corporation is not directly doing any business in the foreign jurisdiction.

Of course, a situation can be reversed: it can be a foreign parent corporation that organizes a US subsidiary. In this case, the foreign parent company will have its separate identity from its US subsidiary. It will be merely a shareholder of the US company in the eyes of the IRS.

As a separate legal entity, subsidiaries will usually have a host of legal and tax duties in the jurisdiction where they are organized.

Subsidiary vs. Branch: Forced Tax Similarities

Despite these legal differences, the US tax treatment of a subsidiary and a branch created some artificial similarities between these two forms of business. The reason for these similarities is the huge potential for tax deferral through subsidiaries.

The basic trend here is to minimize the advantages of a separate legal identity of a subsidiary, making it a lot more similar to a branch when it comes to tax treatment. The IRS has achieved this through the usage of a number of anti-deferral regimes, such as Subpart F rules and GILTI tax, as well as transfer pricing rules.

Contact Sherayzen Law Office to Determine Whether a Branch or a Subsidiary is Best for Your Business

Whether you are a US business entity who wishes to do business overseas or a foreign entity that wishes to do business in the United States, you can contact Sherayzen Law Office for professional help. We have helped domestic and foreign businesses with their US international tax planning concerning their inbound and outbound transactions, and we can help you!

San Francisco FBAR Attorney | International Tax Lawyer California

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If you have foreign financial accounts and reside in San Francisco (California), you should be looking for a San Francisco FBAR Attorney in California. In your search, you could consider out-of-state attorneys such as Mr. Eugene Sherayzen of Sherayzen Law Office, Ltd. (“Sherayzen Law Office”). Let’s explore in more detail why this is the case.

San Francisco FBAR Attorney: International Tax Attorney

First of all, it is very important to understand that, by looking for a San Francisco FBAR attorney, in reality, you are looking for an international tax attorney whose specialty includes FBAR compliance.

Ever since the FBAR enforcement was turned over to the IRS (in 2001), the term FBAR attorney applies exclusively to tax attorneys.

Moreover, FBAR enforcement belongs to a very special field of US tax law – US international tax law. The reason for this is simple: FBAR is an information return concerning foreign assets and the tax compliance concerning foreign assets and foreign income belongs to US international tax law. Hence, when you look for an FBAR attorney, you are looking for an international tax attorney with a specialty in FBAR compliance.

San Francisco FBAR Attorney: Out-Of-State International Tax Attorney

It is further important to note that, since you are looking for an attorney who specializes in US international tax law (i.e. a federal area of law), you do not need to limit yourself to lawyers who reside in San Francisco, California. On the contrary, you could consider international tax attorneys who reside in other states and help San Francisco residents with their FBAR compliance.

Sherayzen Law Office is an international tax law firm that specializes in US international tax compliance, including FBARs. While our office is in Minneapolis, Minnesota, we help taxpayers who reside throughout the United States, including San Francisco, California.

San Francisco FBAR Attorney: Broad Scope of Compliance

When retaining a San Francisco FBAR Attorney, you should consider the fact that such an attorney’s work is not limited only to the preparation and filing of FBARs. Rather, the attorney needs to be able to deliver a variety of services and freely operate with experience and knowledge in all relevant areas of US international tax law, including the various offshore voluntary disclosure options concerning delinquent FBARs.

Moreover, as part of an offshore voluntary disclosure, an FBAR attorney often needs to amend US tax returns, properly prepare foreign financial statements according to US GAAP, correctly calculate PFICs, and complete an innumerable number of other tasks.

Contact Sherayzen Law Office If You Need A San Francisco FBAR Attorney

Mr. Sherayzen has helped hundreds of US taxpayers worldwide to bring their tax affairs into full compliance with US tax laws. This work included the preparation and filing of offshore voluntary disclosures concerning delinquent FBARs. Sherayzen Law Office offers help with all kinds of offshore voluntary disclosure options, including: SDOP (Streamlined Domestic Offshore Procedures), SFOP (Streamlined Foreign Offshore Procedures), DFSP (Delinquent FBAR Submission Procedures), DIIRSP (Delinquent International Information Return Submission Procedures), IRS VDP (IRS Voluntary Disclosure Practice) and Reasonable Cause disclosures.

Thus, if you are a resident of San Francisco looking for an FBAR help, contact Sherayzen Law Office as soon as possible to secure Your Confidential Consultation!

International Tax Planning Priorities for US Corporations

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Sometimes, I encounter in my practice one particularly damaging belief concerning international tax planning for US corporations that engage in cross-border transactions and maintain a foreign subsidiary or a network of foreign subsidiaries. This is a belief that international tax planning for such corporations should only focus on the reduction of its US taxes above all other considerations. I reject this one-sided view and argue for balancing of international tax planning priorities for such US corporations. In this article, I will discuss the top priorities that are subject to balancing during proper international tax planning for US corporations who operate overseas.

International Tax Planning Priorities: Tax Planning Should Correspond to Dynamic Facts

Before we outline international tax planning priorities, we need to state a rule that seems very obvious but, unfortunately, is often overlooked – tax planning must correspond to the factual situation around which the planning is done. Since a factual situation of a business is prone to rapid changes, tax planning either needs to pro-actively respond to these dynamic facts or, in cases where it is not possible, adjust to these facts as soon as possible in order to avoid a negative tax impact in the future.

This means that engaging in business transactions that spread over multiple taxing jurisdictions requires continuous tax planning, continuous monitoring of the factual background in which these transactions take place and continuous assessment of tax consequences of these activities.

This rule also means that tax planning must respond to the facts generated by the required business transaction rather than create business transactions purely to save taxes. I should point out that such purely tax-motivated schemes are also unlikely to pass judicial review.

International Tax Planning Priorities: Lower US Tax Liability

There is no question that ethically lowering US tax liability based on the opportunities and incentives present in the Internal Revenue Code is one of the most important priorities of international tax planning. As I stated above, however, this is not the only priority.

International Tax Planning Priorities: Lower Foreign Tax Liability

It is not just the US tax liability of the head office that we should be concerned about. International tax planning should also seek to lower foreign tax liability of its subsidiaries. Moreover, if lowering US tax liability comes at the cost of increasing foreign tax liability or missing an opportunity to minimize it, this outcome may not be optimal for the overall corporate structure.

International Tax Planning Priorities: Maximizing Corporate Earnings

This is a key issue that many practitioners and business owners often miss in US international tax planning. Tax planning is not only about lowering taxes at any cost. If a business is continuously losing a significant amount of money (not strategically recognizing losses, but its profits are actually reduced) because of tax planning, then such tax planning may not be worth the effort.

Effective tax planning means that a tax practitioner should coordinate tax saving efforts with business priorities. Business planning will always see to utilize corporate cash and personnel in a way that maximizes profits. Moreover, business planning will also seek to creatively allocate and move excess cash flow between corporate subsidiaries (and the head office) for the same purpose.

It is precisely the latter function of business planning that requires the most attention of international tax attorneys, because it may result in significant tax costs (which may more than offset the benefit of business planning). At the same time, tax planning must be done in such a way as to minimize the damage it can do to the business’ ability to move cash across the entire corporate structure.

Contact Sherayzen Law Office for International Tax Planning Help

At Sherayzen Law Office, we understand these priorities and the need to balance them before finalizing international tax planning. We can help you!

Contact Us Today to Schedule Your Confidential Consultation!

Foreign Partnership Definition | International Business Tax Lawyers

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Defining a partnership as “foreign” or “domestic” can be highly important for US tax purposes. In this article, I will explain the foreign partnership definition and explain its significance.

Foreign Partnership Definition: Importance

There may be important US international tax law consequences that stem from whether a partnership is classified as “foreign” or “domestic”. These consequences may encompass not only income tax compliance, but also the type of information returns that may have to be filed. Even tax withholding requirements may be affected by this classification.

Let me give you a few examples of where foreign partnership directly appears in the IRC (Internal Revenue Code) in order for you to appreciate the significance of the foreign partnership definition. The term foreign partnership appears in such diverse provisions as IRC §6046A (filing of information returns by U.S. persons with regard to acquisition, disposition, or substantial change of interest in foreign partnership – this is the famous IRS Form 8865), §3401(d)(2) (wage withholding), §168(h)(5) (tax-exempt entity leasing rules) and even tax withholding rules for disposition of US real property under §1445.

The main reason for this significance of the foreign partnership definition lies in §7701(a)(30), which states that a foreign partnership is not a “US Person”, a highly important term of art in US international tax law. The implications of being a “foreign person” rather than a “US person” can be huge, extending as far as affecting anti-deferral tax regimes.

Foreign Partnership Definition: Formal Partnership

Let’s delve now into the foreign partnership definition. Our starting point is §7701(a)(5); it states that a partnership is considered to be foreign as long as it is “not domestic”. §7701(a)(4) defines domestic partnership as those which were “created or organized in the United States, or under the law of the United States or of any State.”

Under §7701(a)(9), the term “United States” includes only the states and the District of Columbia. In other words, if a partnership is formally organized in any place other than the fifty states of the United States and the District of Columbia, it is a foreign partnership.

What about partnerships created or organized in US possessions? The IRS and the courts have consistently stated that they are foreign (though there are more examples of these rulings with respect to corporations rather than partnerships).

What if a partnership is chartered both in the United States and another country? Without delving too deeply into legal analysis, pursuant to Treas. Reg. §301.7701-5(a), such a partnership would be classified as a domestic entity

Foreign Partnership Definition: Common Law/Private Agreement Partnerships

The above definition only works well in cases where a partnership is formally created or organized under the laws of a country. However, it is also possible for the IRS to classify a contractual relationship as a partnership for tax purposes. In these cases, the determination of whether a partnership is a foreign or domestic for US international tax purposes is a lot more difficult.

At this point, there is no absolute clarity provided by the IRS on this issue. However, there are two main approaches for determining whether a deemed partnership is domestic or foreign that may be acceptable to the IRS: (1) the contract’s governing law; and (2) primary location of the business of the deemed partnership. Let’s review these approaches.

Foreign Partnership Definition for Deemed Partnerships: Governing Law Approach

The governing law approach to classification of partnerships as foreign or domestic states that a partnership should be classified as foreign or domestic depending on the governing law which controls the agreement that gave rise to the deemed partnership.

The IRS often likes this approach, because it pretty much mimics the foreign partnership definition for formal partnerships described above. In other words, while in a formal partnership we look at the place of organization, the governing law approach for deemed partnerships basically looks at the jurisdiction which controls the legal enforcement of the partnership agreement. Both approaches are based on the premise that the foreign partnership definition should depend on whether the partners’ rights and duties are defined under domestic or foreign law.

Foreign Partnership Definition for Deemed Partnerships: Business Location Approach

The primary location of business approach, on the other hand, seeks to classify a deemed partnership not based on where the partners’ rights and duties are defined, but based on where the business of the partnership is actually conducted. The advantage of this approach is that it is closer to business reality and does not artificially classify a partnership based on which law governs it.

There are, however, problems with this approach which make the IRS like it a lot less. First of all, it is very difficult to apply this approach to a partnership with extensive business operations within and outside of the United States. Second, the classification of the same partnership may often switch depending on the shift in the volume of its US operations versus foreign operations.

Contact Sherayzen Law Office for Help With Foreign Partnership Definition

If you are unclear about the classification of your partnership for US tax purposes or you wish to change the existing classification for US tax planning purposes, contact the US international tax law firm of Sherayzen Law Office for professional help. We Can Help You!

Berkeley FBAR Attorney | International Tax Lawyers California

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If you have foreign financial accounts and reside in Berkeley (California), you would be looking for a Berkeley FBAR Attorney in California. In your search, consider out-of-state attorneys such as Mr. Eugene Sherayzen of Sherayzen Law Office, Ltd. (“Sherayzen Law Office”). Let’s explore in more detail why this is the case.

Berkeley FBAR Attorney: International Tax Attorney

First of all, it is very important to understand that, by looking for a Berkeley FBAR attorney, in reality, you are looking for an international tax attorney whose specialty includes FBAR compliance.

Ever since the FBAR enforcement was turned over to the IRS (in 2001), the term FBAR attorney applies exclusively to tax attorneys.

Moreover, FBAR enforcement belongs to a very special field of US tax law – US international tax law. The reason for this is simple: FBAR is an information return concerning foreign assets and the tax compliance concerning foreign assets and foreign income belongs to US international tax law. Hence, when you look for an FBAR attorney, you are looking for an international tax attorney with a specialty in FBAR compliance.

Berkeley FBAR Attorney: Out-Of-State International Tax Attorney

It is further important to note that, since you are looking for an attorney who specializes in US international tax law (i.e. a federal area of law), you do not need to limit yourself to lawyers who reside in Berkeley, California. On the contrary, consider international tax attorneys who reside in other states and help Berkeley residents with their FBAR compliance.

Sherayzen Law Office is an international tax law firm that specializes in US international tax compliance, including FBARs. While our office is in Minneapolis, Minnesota, we help taxpayers who reside throughout the United States, including Berkeley, California.

Berkeley FBAR Attorney: Broad Scope of Compliance

When retaining a Berkeley FBAR Attorney, consider the fact that such an attorney’s work is not limited only to the preparation and filing of FBARs. Rather, the attorney needs to be able to deliver a variety of services and freely operate with experience and knowledge in all relevant areas of US international tax law, including the various offshore voluntary disclosure options concerning delinquent FBARs.

Moreover, as part of an offshore voluntary disclosure, an FBAR attorney often needs to amend US tax returns, properly prepare foreign financial statements according to US GAAP, correctly calculate PFICs, and complete an innumerable number of other tasks.

Contact Sherayzen Law Office If You Need A Berkeley FBAR Attorney

Mr. Sherayzen has helped hundreds of US taxpayers worldwide to bring their tax affairs into full compliance with US tax laws. This work included the preparation and filing of offshore voluntary disclosures concerning delinquent FBARs. Sherayzen Law Office offers help with all kinds of offshore voluntary disclosure options, including: SDOP (Streamlined Domestic Offshore Procedures), SFOP (Streamlined Foreign Offshore Procedures), DFSP (Delinquent FBAR Submission Procedures), DIIRSP (Delinquent International Information Return Submission Procedures), IRS VDP (IRS Voluntary Disclosure Practice) and Reasonable Cause disclosures.

Thus, if you are looking for a Berkeley FBAR Attorney, contact Mr. Sherayzen as soon as possible to secure Your Confidential Consultation!