U.S. Taxation of International Transactions
the following scenarios below
concerning U.S. taxation on international transactions
Scenario 1: USAco, a domestic corporation, forms a Canadian
subsidiary, CANco, to distribute USAco’s widgets in Canada. USAco sells widgets
to CANco for resale in Canada, providing CANco with USAco’s unique distribution
software. This provides the use of USAco’s collections staff to collect
receivables from delinquent accounts.
What are the intercompany transactions that USAco must price
at arm’s length?
What compliance techniques may USAco employ to minimize the
risk of a transfer pricing penalty?
Scenario 2: Erica is a citizen of a foreign country, and is
employed by a foreign-based computer manufacturer. Erica’s job is to provide
technical assistance to customers who purchase the company’s mainframe
computers. Many of Erica’s customers are located in the United States. As a
consequence, Erica consistently spends about 100 working days per year in the
United States. In addition, Erica spends about 20 vacation days per year in Las
Vegas, since she loves to gamble and also enjoys the desert climate. Erica does
not possess a green card. Assume that the United States has entered into an
income tax treaty with Erica’s home country that is identical to the United
States Model Income Tax Convention of November 15, 2006.
How does the United States tax Erica’s activities?
How would your answer change if Erica were a self-employed
technician rather than an employee?
