| Legal Entity Management
Legal entity management and the tax treatment of legal entities are challenging business issues that tax professionals are constantly faced with. Changes in tax and legal requirements, legislative changes, or a change in the profitability of the business may force a review of whether an entity structure is still serving the business’ needs. Changes in entity structure can reduce effective tax rate (ETR), help manage ETR risk, provide greater flexibility to move cash and property among entities, and increase cash flow.
Using Liquid Engines ITx, tax planners considering check-the-box (CTB) can quickly weigh the treatment options and analyze many tax aspects at both the U.S. parent level and the entity level. Regardless of foreign treatment, tax planners can quantify the tax impact of changing the entity characterization of one or more entities for U.S. tax purposes in the year of the CTB election and in subsequent years. Planners can compare the outcomes of either electing or not electing to use CTB over multiple years. With ITx, international tax teams are able to:
ITx enables companies to quickly and comprehensively analyze the impact of Check-n-Sell. It can help eliminate the risk associated with claiming foreign tax credits (FTC) in the U.S. in the case of a CFC’s (controlled foreign corporation) loss, overall foreign loss, and the limitation on deductibility of partnership loss.
ITx enables companies to analyze all their options for moving cash and property among entities. These might include moving cash between foreign entities without taxation by the U.S. through repatriation, transferring intellectual property between related CFCs, and setting up foreign corporate holding structures to stop the flow through of earnings and taxes until the U.S. parent needs them. Companies can leverage entities to flexibly allocate deductions and credits in a way that’s not possible in a corporate entity; for example, by blending foreign tax rates among CTB hybrid entities, changing the apportionment bases among CTB entities, and determining the most effective sequence of CTB among entities. Companies can also deduct a CFC’s trapped losses on the parent’s books rather than waiting years to sell the stock at a capital loss, and can eliminate Subpart F between related CFCs.
Companies can explore their options for using FTC immediately. They might also reduce foreign taxes through deductible payments made by high-taxed entities to low-taxed entities, or determine deemed distribution from a deemed 332 liquidation.
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