| Subpart F Planning
International tax professionals must navigate the waters of Subpart F in order to maximize cash tax and minimize tax risk. Under the existing system, a U.S.-based multinational company that is engaged solely in active foreign business operations through multiple subsidiaries can incur significant U.S. taxation simply by redeploying its active foreign assets among its foreign businesses. This inhibits the ability of U.S.-based companies to respond to market opportunities by imposing a U.S. tax cost on business decisions.
Business events such as M&A activity, initiation of a new line of business, a change in business model, a change in profitability, or a major U.S. or foreign audit settlement force tax professionals to understand the impact of deferring, or not deferring, income on tax. Using Liquid Engines ITx, tax professionals can quantify many financial aspects and business operation needs at the U.S. parent level, and at multiple CFC (controlled foreign corporation) levels, in light of the Subpart F rules. Tax professionals can quickly plan, quantify, compare, and analyze the impact of triggering Subpart F vs. not triggering Subpart F.
Tax professionals can plan and quantify major business and tax planning initiatives, taking into account the impact of dividends on state taxes, of major U.S. and foreign audit settlements made during the year, and of any significant U.S. and foreign legislative and tax changes. They can monitor Subpart F for major tax or business events that occur during the year in order to implement a mid-course correction before the year ends, and investigate ways of triggering Sec. 956 deemed dividends to get the use of cash in the U.S. without triggering withholding tax. With ITx, models can quickly be created that take into account the company’s risk tolerance level for an increase in effective tax rate (ETR), supporting critical ETR management decisions.
ITx helps CFCs calculate the accumulated earnings or loss of the CFC, its accumulated taxes, and the tax rates of the accumulated earnings. Users can model different levels of previously taxed income, withholding tax rates, as well as ways of closing a CFC or series of CFCs to a high-tax exception.
Tax professionals can analyze previously taxed income of the CFC by the U.S. and uncover expected Subpart F before the year comes to a close. They can quickly distill the many considerations and interrelated tax complexities down to a few manageable key points to optimally use Subpart F rules to the company’s advantage.
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