Page 43 - International Taxation IRS Training Guides
P. 43
Illustration: Income
Effectively Connected
to
U.S. Trade or Business
ECI
Example 1: USTB with • ECI: Net income tax, normal
rates
USTB?
Corporation Unrelated • Step 1:
(Country X) U.S. Corp − Is the U.S. activity considerable,
e.g., continuous, and regular so as to
royalties, $ rise to the level of a USTB?
for tangible − No fixed location required.
Regular U.S. goods • Step 2: Determine source
activities (no • Step 3: Effectively
fixed connected?
location)
− If there’s a USTB, most U.S.
source income is ECI. No
Example 2: USTB with factual connection required.
ECI
− Certain foreign-source income
may be ECI
Country X Unrelated − Comp. for personal services
Resident e.g., comp. U.S. Corp performed in U.S. is generally
ECI.
for services − Investment income (e.g.
performed dividends, interest, gains)
in U.S. requires a factual connection to
assets or activities of USTB.
41