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.


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