Tax Consulting International Tax Fundamentals 2 — Questions and Answers
Question 1: Under the Foreign Account Tax Compliance Act (FATCA), foreign financial institutions must report information about:
- All accounts regardless of balance
- Accounts held by US persons to the IRS (Correct answer)
- Only corporate accounts of US multinationals
- Accounts of US government employees
Correct answer: Accounts held by US persons to the IRS
FATCA requires foreign financial institutions to identify and report to the IRS information about financial accounts held by US persons or foreign entities with substantial US ownership.
Question 2: The GILTI (Global Intangible Low-Taxed Income) provision enacted by the TCJA primarily affects:
- Individual US taxpayers with foreign investments
- US corporations with controlled foreign subsidiaries earning income above a routine return (Correct answer)
- Foreign companies doing business in the US
- US partnerships with foreign partners
Correct answer: US corporations with controlled foreign subsidiaries earning income above a routine return
GILTI taxes US corporations on the excess of their CFC net income above a 10% deemed return on tangible assets, targeting intangible income shifted to low-tax jurisdictions.
Question 3: What is a tax treaty's primary function in international taxation?
- Creating new taxes on cross-border transactions
- Preventing double taxation and allocating taxing rights between two countries (Correct answer)
- Enforcing criminal penalties on tax evaders
- Standardizing corporate tax rates globally
Correct answer: Preventing double taxation and allocating taxing rights between two countries
Tax treaties between countries allocate taxing rights over various income types, reduce withholding tax rates, and provide mechanisms to eliminate double taxation.
Question 4: Which form must US persons file to report ownership or control of foreign corporations where they own 10% or more?
- Form 5471 (Correct answer)
- Form 8938
- Form 1116
- FinCEN 114
Correct answer: Form 5471
Form 5471 (Information Return of US Persons With Respect to Certain Foreign Corporations) must be filed by US persons with significant ownership interests in foreign corporations.
Question 5: The base erosion and anti-abuse tax (BEAT) under the TCJA applies to:
- All US corporations with any foreign operations
- Large US corporations making significant deductible payments to related foreign parties (Correct answer)
- Foreign corporations earning US-source income
- US individuals investing in foreign funds
Correct answer: Large US corporations making significant deductible payments to related foreign parties
BEAT imposes a minimum tax on large US corporations (gross receipts over $500 million) that make substantial deductible payments to related foreign parties, preventing base erosion.
Question 6: Under the 'substantial presence test,' a foreign national becomes a US tax resident for a given year if they are present in the US for at least how many days in the current year plus weighted prior years?
- 90 days
- 120 days
- 183 days (Correct answer)
- 365 days
Correct answer: 183 days
The substantial presence test counts all days in the current year plus 1/3 of prior year days plus 1/6 of two-years-ago days; if the total equals or exceeds 183, the individual is a US resident for tax purposes.
Tax Consulting International Tax Fundamentals 2
Under the Foreign Account Tax Compliance Act (FATCA), foreign financial institutions must report information about: