Foreign Branches, QBUs, and Disregarded Entities: Foreign Tax Credits, Anti-Hybrid Rules, and Planning Strategies

A U.S. company can conduct business through a branch in another country or through a foreign entity that is disregarded in the U.S. Generally, a foreign branch is a trade or business operated in a foreign country that maintains its own set of books and records. Although Section 989 defines a foreign branch as a qualified business unit, whether or not it is a trade or business is a facts and circumstances determination.

Income or loss from a foreign branch is reported on a U.S. consolidated income tax return. This can provide substantial benefits to the group when the branch is reporting losses. Dual losses--deducting the same loss in both countries--are prohibited. Reporting income provides additional complexities. Allocation and reallocation rules for foreign branch income must be analyzed to calculate the allowable foreign tax credit. Foreign branch income is subject to a 21 percent tax rate and is ineligible for the Section 250 FDII deductions which yield a 13.125 percent effective tax rate.

Listen as our panel of foreign tax experts explains the tax considerations of operating a foreign branch, including planning strategies to lower the overall tax burden of multinational trade or businesses. Furthermore, Section 267A contains branch payment rules and branch payment mismatch rules that international tax practitioners must understand.

1. Foreign branches: overview
2. Foreign branch loss recapture under Section 91
3. Subpart F and GILTI
   1. Section 954(d)(2) branch income rules
   2. GILTI and Subpart F high-tax exceptions
4. Foreign tax credit
5. Anti-hybrid rules
6. Form 8858 reporting
7. Planning strategies

The panel will review these and other critical issues:

• What constitutes a foreign branch?
• Who is required to file Form 8858 and Schedule M?
• What is a branch mismatch payment under Section 267A?
• What are the differences between a foreign subsidiary and a foreign branch?

Learning Objectives

After completing this course, you will be able to:

• Identify specific examples of foreign trade or businesses
• Determine how to allocate foreign branch income to determine the foreign tax credit
• Decide who should file Form 8858, Information Return of U.S. Persons With Respect to Foreign DREs and Foreign Branches
• Ascertain specific taxation differences between foreign subsidiaries and foreign branches

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Three years+ business or public firm experience preparing complex tax forms and schedules, supervising other preparers or accountants. Specific knowledge and understanding of international taxation including residency determination, foreign entity classifications, application of treaty benefits, as well as GILTI, Subpart F, and the related Section 250 deductions.

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.

IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).