Page 5 - U.S, International Taxation Inbound - Outbound Transactions_Neat

Inbound Transactions (continued)

Foreign persons who receive payment from U.S. sources consisting of:

▪ interest, dividends, rents, royalties, wages, annuities, etc., and

▪ gains and losses from the sale or exchange of capital assets IRC. Sec. 864 (c) (2)

will be considered receiving EBT income if they have sufficient economic nexus with such

trade or business. The following two tests are used to establish such nexus:

1. Asset use test.- Income is considered to be effectively connected with a U.S. trade or

business if it is derived from assets used in the conduct of such trade or business (IRC. Sec.

864(c)(2)(A) and Treas. Reg. Sec. 1.864-4(c)(4). This test generally apply in making a

determination with respect to passive income (interest, dividends, gains , etc.)

2. Business activities test.- Under this test, income, gain or loss are treated as EBT if it arises

directly from the active conduct of a trade or business in the U.S. (IRC. Sec. 864 (c)(2)(B)

and Treas. Reg. Sec. 1.864-4(c)(4). The activities of the trade or business must be a material

factorin the realization of the income.