This course covers the basic principles underlying the current US system for taxing US persons on income earned outside the United States and for taxing foreign persons on income earned in the United States.
The course will begin by considering fundamental policy questions in designing an international tax system and how the United States answers them--by taxing US persons on their worldwide income and taxing foreign persons on some US source income. Next we will study rules for determining whether a business entity or individual is a US person for tax purposes (residence) and for determining whether income is earned in the United States (source). Then we study rules mitigating double taxation of foreign source income of US persons through the foreign tax credit, including an important 2013 Supreme Court decision on the credit. We will study how US taxpayers can defer indefinitely paying US tax on some profits earned through foreign corporations--the focus of recent Congressional attention--and the extent to which current law limits deferral. Next we will study how the United States taxes both foreigners engaged in business in the United States and those with US source investment income, including how the United States has agreed through bilateral treaties to relax taxation of some non-US persons. The course will also introduce current law limits on use of transactions between related parties (transfer pricing) to shift income outside the United States as well some limits on otherwise tax-free corporate transactions involving a foreign corporation. In this last part of the course, we will study "inversions," in which a US corporation effectively expatriates by combining with a foreign corporation; we will cover both the tax motivations for these transactions and current law restrictions on them.
Students not only will learn key provisions in the Internal Revenue Code and regulations, but also will develop an understanding of the policy considerations that have shaped current law and will shape future reforms. Drawing on the instructor's experience, the course will cover some basic practical points students should know in advising clients on structuring cross-border investments and in working on common transactions. Each class will combine lecture with discussion of a number of problems to illustrate and solidify understanding of the concepts, rules and practical points studied. The problems generally will use hypotheticals to teach close reading and careful application of the assigned provisions of the Code and regulations.
Students should have taken the basic course in US federal income taxation, or have both equivalent preparation and the permission of the instructor..