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Tax Court approves tax-free payment of outbound guarantee fees

Recently, in Container Corp v Comr, the Tax Court held that guarantee payments are sourced by reference to the "location" of the guarantor and, therefore, are foreign-source income when paid by a US subsidiary to a foreign affiliate. Thus, the Tax Court apparently approved a technique for using guar... Full description

Journal Title: Tax Management International Journal 2010-08-13, Vol.39 (8), p.439
Main Author: Miller, Michael J
Other Authors: Zhang, Libin
Format: Electronic Article Electronic Article
Language: English
Subjects:
Quelle: Alma/SFX Local Collection
Publisher: Washington: Bureau of National Affairs, Inc
ID: ISSN: 0090-4600
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recordid: cdi_proquest_reports_734866829
title: Tax Court approves tax-free payment of outbound guarantee fees
format: Article
creator:
  • Miller, Michael J
  • Zhang, Libin
subjects:
  • Affiliates
  • Compensation
  • Corporate income taxes
  • Foreign source income
  • Foreign source income taxation
  • Guarantees
  • Laws, regulations and rules
  • Multinational corporations
  • Stockholders
  • Tax court decisions
  • Tax courts
  • Tax-free exchanges
  • Transfer pricing
  • Treasuries
ispartof: Tax Management International Journal, 2010-08-13, Vol.39 (8), p.439
description: Recently, in Container Corp v Comr, the Tax Court held that guarantee payments are sourced by reference to the "location" of the guarantor and, therefore, are foreign-source income when paid by a US subsidiary to a foreign affiliate. Thus, the Tax Court apparently approved a technique for using guarantees to strip income from the US to foreign affiliates on a tax-free basis. However, the ability of foreign-based multinationals to take advantage of this decision is doubtful. The Tax Court began the discussion with the well- established proposition that, where there is no sourcing rule in the Code for a particular type of income, it is necessary to source by analogy to a type of income for which a sourcing rule is provided. Although not relied upon as a basis for its decision, it is interesting to speculate on whether the court was influenced by the fact that the IRS had previously concluded that guarantees actually constitute services.
language: eng
source: Alma/SFX Local Collection
identifier: ISSN: 0090-4600
fulltext: fulltext
issn:
  • 0090-4600
  • 1544-0761
url: Link


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descriptionRecently, in Container Corp v Comr, the Tax Court held that guarantee payments are sourced by reference to the "location" of the guarantor and, therefore, are foreign-source income when paid by a US subsidiary to a foreign affiliate. Thus, the Tax Court apparently approved a technique for using guarantees to strip income from the US to foreign affiliates on a tax-free basis. However, the ability of foreign-based multinationals to take advantage of this decision is doubtful. The Tax Court began the discussion with the well- established proposition that, where there is no sourcing rule in the Code for a particular type of income, it is necessary to source by analogy to a type of income for which a sourcing rule is provided. Although not relied upon as a basis for its decision, it is interesting to speculate on whether the court was influenced by the fact that the IRS had previously concluded that guarantees actually constitute services.
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subjectAffiliates ; Compensation ; Corporate income taxes ; Foreign source income ; Foreign source income taxation ; Guarantees ; Laws, regulations and rules ; Multinational corporations ; Stockholders ; Tax court decisions ; Tax courts ; Tax-free exchanges ; Transfer pricing ; Treasuries
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abstractRecently, in Container Corp v Comr, the Tax Court held that guarantee payments are sourced by reference to the "location" of the guarantor and, therefore, are foreign-source income when paid by a US subsidiary to a foreign affiliate. Thus, the Tax Court apparently approved a technique for using guarantees to strip income from the US to foreign affiliates on a tax-free basis. However, the ability of foreign-based multinationals to take advantage of this decision is doubtful. The Tax Court began the discussion with the well- established proposition that, where there is no sourcing rule in the Code for a particular type of income, it is necessary to source by analogy to a type of income for which a sourcing rule is provided. Although not relied upon as a basis for its decision, it is interesting to speculate on whether the court was influenced by the fact that the IRS had previously concluded that guarantees actually constitute services.
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