Page 18 - Strategic Tax Planning for Global Commerce & Investment
P. 18
Cross Border Tax Planning Strategies
Source of Income
In order to function properly, both territorial and worldwide
systems general contain rules that define when an item of
income is sourced within their jurisdiction. The connecting
factor between income and the territory generally differs
depending on the item of income concerned. For example,
income from real property is generally deemed to arise in the
country where the real property is located.
Income from interest, on the other hand, may be deemed to
arise from:
Where the capital is located
Where the capital is invested, or
Where the payer of the interest resides.
There may be divergences in determining the source of an item
of income. The relevant double tax treaty eliminates these
divergences in several instances.
U.S. Jurisdictional Authority to Tax Foreign Income
Entity or Event Applicable to General Tax Significance
Citizenship and U.S. citizens; U.S. taxes on worldwide income
place of formation domestic entities or
Residence Resident aliens U.S. taxes on worldwide income
Source of Income Non-resident aliens; U.S. taxes only on income
foreign entities derived within the U.S.
Income effectively Non-resident aliens; U.S. taxes on income derived
connected with U.S. foreign entities within the U.S. and certain
trade or business income derived outside the U.S.
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