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Basics of International Tax Services

Product of BKMSH

The United States government has a policy that requires it to impose taxes on all its residents and
corporations owned by its citizens based on their global revenues. For offshore sources of income, the
U.S. government adheres to international income taxation. As such, the federal government grants
credits on overseas taxes paid against the U.S. tax liability. This, in turn, does not deter the country’s
domestic investors from making outbound ventures.
The law in U.S. international taxation is such that as long as the taxpayer is connected to the country,
he/she is subject to liabilities imposed by the government.
Currently, a lot of people have business ventures, assets, and properties spread across the world. U.S.
entities possess offshore investments in the same way that non-U.S. corporations have invested or are
opting to reach and be a part of the country’s economy. For this reason, the need for firms that offer
international tax services is growing and expanding. Most of the services being rendered by tax and
accounting firms involve foreign trusts, gifts or inheritance, estates, income tax, and tax-related
planning. In addition, there are the transfer pricing planning and compliance; expatriate, foreign and
alien tax; availing U.S. incentives; and other inbound and outbound tax services.

Foreign Trusts
The Small Business Protection Act and the Taxpayer Relief Act of 1997 were legislated as a
consequence of severe abuses of foreign trust tax. The enforcement of these two Acts ensued various
changes, which led to the contemporary rules for taxation of foreign trusts and trusts with foreign
grantors.
Foreign trusts allowed non-U.S. individuals with high net worth to increase and secure their investments
with the goal of handing over these assets and properties to people who may live in U.S. Revenues from
foreign trusts are taxable if they are derived from U.S. sources. In disclosing foreign trusts, the IRS has
released guidelines and requirements that should be complied with and followed. Firms that offer
services for foreign trust compliance can help their clients in filing Form 3520 or the Annual Return to
Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts, and the Form 3520-A or
the Annual Information Return of Foreign Trust with a U.S. owner.

Foreign Gifts or Inheritance
Gifts or inheritances that are characterized as income are subject to U.S. taxation. As such, they have to
be disclosed on the income tax return. If this is not the case, then Form 3520 has to be filed. It is the
individual’s or the company’s prerogative to hire a tax firm that will assist them in complying with the
rules and procedures set by the IRS.

15301 Dallas Parkway, Suite 960 Addison, Texas 75001 Phone: 214.545.3965 Fax: 214.545.3966 www.bkmsh.com

Foreign Estates
Non-residents with U.S. properties are required by the law to file estate tax returns. According to IRS,
“real estate, tangible property, and securities of US entities, as well as non-resident’s stock holdings in
American corporations are subject to estate taxation.” Firms that provide services for foreign estate
taxation will assist their clients in filing Form 706NA or the United States Estate (and GenerationSkipping) Tax Return, Estate of a non-resident (not a citizen of the United States), or Form 706, which
is the United States Estate (and Generation-Skipping) Tax Return, Estate of a citizen or resident of the
United States.

Foreign Income Tax
The IRS clearly instructs entities and individuals that their generated revenues offshore are taxable.
Forms associated with foreign income tax are Form W-2 Wage and Tax Statement, Form 1099, and
their foreign equivalents.
Income exclusion is a policy of the federal government and it is enjoyed by those companies that meet
certain thresholds. In addition, those who live overseas can have their housing costs to either be written
off or offset by the same housing costs.

Transfer Pricing
The country’s tax laws mandate the documentation of transfer pricing. According to the Tax Justice
Network, transfer pricing occurs when two entities of similar multinational group transact with each
other. The resulting price of a transaction is called transfer pricing. Firms that provide assistance for
transfer pricing help in documentation, prevent misunderstandings or resolve disagreements. In
addition, they perform Business Model Optimization that will let the parties involved better comprehend
the demands of operations and tax policies- then turn it into a business model.

Tax Incentives
In most cases, businesses profit from tax incentives when their operations are based within the country.
In addition, tax credits such as foreign tax credit, research and development credit, and work
opportunity credit are allowed by the federal government but on certain limitations.
In foreign taxation, it is ideal that companies and individuals ask for assistance from tax firms that offer
more than just technical counseling. It is, therefore, only fitting to employ tax firms that are dedicated
and committed to providing services and fully understand what their client needs.

15301 Dallas Parkway, Suite 960 Addison, Texas 75001 Phone: 214.545.3965 Fax: 214.545.3966 www.bkmsh.com