As global economics have prospered due to increasing cross-border trade and international business transactions, the US government has introduced new tax regulations governing how these transactions are accounted for.
Here is a description of two of the many forms now required to be filed by taxpayers with foreign business transactions or foreign related parties. These forms were introduced under the Tax Cuts and Jobs Act of 2017.
Form 8992 is used to report US shareholder calculation of global intangible low-taxed income (GILTI) under newly enacted section 951A. This new section requires US shareholders of controlled foreign corporations (CFCs) to include in gross income on a current basis shareholders’ GILTI for years in which they are US shareholders of CFCs with tax years beginning after 2017.
The Act also provides certain deductions for export of specified sales and services and certain deductions related to the GILTI under section 250.
Form 8993 is used by US persons to calculate deductions allowed under section 250, for the eligible percentage of foreign-derived intangible income (FDII) and GILTI. The deduction for the eligible percentage of FDII is available only to US corporations, but the deduction to reduce GILTI income may be available to US individuals through the use of other elections.
Other relevant forms
Other forms that may be required are 5471, 5472, 8865, 8858, 8804, 8805, 1042, 8938, and 114. Some of the foreign tax reports and forms are required only for reporting purposes and may not involve any additional tax burden, but heavy penalties and interest may be incurred if they are not filed in time, explain the experts at Marcum LLP.
To optimize cross-border taxation, now more than ever, it is important to understand all of the reporting and tax payment requirements of the US government and to evaluate your business structure in the light of such requirements. The restructuring of an organization and understanding of the tax results from check-the-box rules may provide a more efficient and cost-effective approach to tax compliance and, ultimately, to the effective global income tax rate.
Author: Abhishek Gupta, CPA, Tax & Business Services manager, Marcum LLP, Fort Lauderdale, Florida, USA