Cross-border taxation can be subdivided into various categories based on the type of transaction being analyzed. At the highest level, the categories include “inbound” and “outbound.” These categories are useful because significantly different U.S. tax rules can apply to the different types of transactions.
Inbound: When viewed from the United States, “inbound” refers to non-U.S. persons (“persons” meaning both individuals as well as entities) with U.S. income and/or U.S. activities. A typical inbound circumstance exists where a foreign corporation has income and/or activities in the U.S. However, in order for a transaction to be considered inbound, it is not necessary for products to be imported into the U.S. If a parent company is from outside the United States and its subsidiary has activities in the United States, it is still an inbound transaction.
Typical cross-border tax issues related to inbound transactions can include: U.S. withholding taxes, transfer pricing, branch profits taxes, branch interest taxes, earnings stripping, income tax treaties, etc.
Outbound: “Outbound” refers to U.S. persons with NON-U.S. income and/or NON-U.S. activities. A typical outbound circumstance exists where a U.S. headquartered corporation has income and/or activities in other countries.
Typical cross-border tax issues related to outbound transactions can include: foreign withholding taxes, transfer pricing, foreign tax credits and foreign tax credit limitations, subpart F income, Code § 956 inclusions (a.k.a. investments in U.S. property), income tax treaties, etc.