International Taxation

This course covers the basic principles underlying the current US system for taxing US persons on income earned outside the United States and for taxing foreign persons on income earned in the United States. The course covers major reforms to that system--the most important in more than a generation--that took effect in 2018.

We will begin by considering fundamental policy questions in designing an international tax system and how the United States answers them--by taxing non-US persons on some US source income and (with important new exceptions) generally taxing US persons on their worldwide income. Next we will study rules for determining whether a business entity or individual is a US person for tax purposes (residence) and for determining whether income is earned in the United States (source). Then we study rules mitigating double taxation of foreign source income of US persons through the foreign tax credit, and policy arguments for and against the credit. We will study how the US tax system treats income earned by US shareholders through foreign corporations. We will see how in some cases that income is not taxed until it is distributed ("deferral"), in other cases it is taxed currently to US shareholders as earned by the foreign corporation and in still other cases it is not taxed at all to some US corporate shareholders under a new "participation exemption."

Next we will study how the United States taxes both foreigners engaged in business in the United States and those with US source investment income, including how the United States has agreed through bilateral treaties to relax taxation of some non-US persons. The course will also introduce current law limits on use of transactions between related parties (transfer pricing) to shift income outside the United States, including new rules that further limit the ability of US corporations to reduce tax through payments to foreign related parties. Finally, we will study some limits on otherwise tax-free corporate transactions involving a foreign corporation. In this last part of the course, we will study "inversions," in which a US corporation effectively expatriates by combining with a foreign corporation; we will cover the tax motivations for these transactions, how Congress and the Treasury have responded and how the reforms that took effect in 2018 have reduced tax incentives for inversions.

Students not only will learn key provisions in the Internal Revenue Code and regulations, but also will develop an understanding of the policy considerations that have shaped current law, including the new reforms, and will shape continuing reforms. Drawing on the instructor's experience, the course will cover some basic practical points students should know in advising clients on structuring cross-border investments and in working on common transactions. Each class will combine lecture with discussion of a number of problems to illustrate and solidify understanding of the concepts, rules and practical points studied. The problems generally will use hypotheticals to teach close reading and careful application of the assigned provisions of the Code and regulations.