Corporate Tax 2010 - BMR Advisors

Cravath, Swaine & Moore LLP
USA
2 Transaction Taxes
2.1 Are there any documentary taxes in the USA
and in some cases eliminated, by an applicable treaty. Treaties
often apply different withholding rates for dividends paid by Real
Estate Investment Trusts (“REITs”) and Regulated Investment
Companies (“RICs”).
USA
There are generally no federal documentary or stamp taxes. State
and local governments often impose transfer taxes on the
recordation or registration of documents, especially with respect to
transfers of real estate.
2.2 Do you have Value Added Tax (or a similar tax) If so, at
what rate or rates
The United States does not have VAT or any similar tax. While
there is no federal-level consumption tax, state and local
governments generally impose sales and use taxes on retail sales of
tangible personal property and certain services. Tax rates and bases
vary among jurisdictions.
2.3 Is VAT (or any similar tax) charged on all transactions or
are there any relevant exclusions
There is no VAT in the United States. Although exemptions from
state and local sales tax depend upon the particular jurisdiction,
common exemptions include “occasional” or “casual” sales; goods
or services purchased for resale; goods or services used or
consumed in manufacturing; certain corporate transactions, such as
transfers in connection with incorporations, liquidations, and
reorganisations; and essential purchases, such as food, prescription
drugs and occasionally clothing.
Tax-exempt organisations are generally excused from sales and use
taxes on purchases pertaining to exempt purposes.
2.4 Is it always fully recoverable by all businesses If not,
what are the relevant restrictions
Although retailers are generally required to collect and remit sales
tax, the tax is imposed on the ultimate consumer. Therefore, as a
technical matter, sales taxes are not paid out of business revenues,
making recovery unnecessary.
2.5 Are there any other transaction taxes
No, there are not.
2.6 Are there any other indirect taxes of which we should be
aware
Federal excise taxes apply to a range of goods and services,
including tobacco, alcohol, air transport and telephone services.
Federal tariffs are levied at various rates on most imported
commodities. State severance taxes are imposed on extractive
sources such as timber and minerals. Ad valorem property taxes are
typically assessed on an annual basis at the state and local level.
3 Cross-border Payments
3.2 Would there be any withholding tax on royalties paid by a
local company to a non-resident
Yes. There is a 30% withholding tax on royalties paid by a U.S.
company to a non-resident recipient. This tax can be reduced, and in
some cases eliminated, by an applicable treaty. Under some treaties,
different withholding tax rates apply to different types of royalties
(e.g., motion picture and television, industrial and natural resource).
3.3 Would there be any withholding tax on interest paid by a
local company to a non-resident
Yes. There is a 30% withholding tax on interest paid by a U.S.
company to a non-resident lender. As with dividends and royalties,
applicable treaties may reduce or eliminate the withholding tax on
interest.
Unlike its treatment of dividends and royalties, the United States
provides a broad statutory exemption from withholding tax for
“portfolio interest”. The portfolio interest exemption generally applies
to interest payments by U.S. persons on: (1) foreign-targeted bearerform
obligations; and (2) registered-form obligations if the holder
certifies its status as a non-U.S. person. Foreign holders of registeredform
obligations usually satisfy this certification requirement by
providing a completed IRS Form W-8BEN. Portfolio interest does not
include: (1) interest received by a 10% shareholder of the borrower;
(2) interest received by a controlled foreign corporation related to the
borrower; (3) interest received by a bank on a bank loan; or (4)
“contingent interest” (interest based on the receipts, sales, cash flows,
income, profits, dividends or distributions of a debtor or a related
party). Due to these limitations, non-U.S. recipients of interest are
often required to provide a statement that they are not a bank or related
to the borrower. In addition, bank deposit interest paid by a U.S. or
non-U.S. branch of a U.S. bank is exempt from withholding tax.
3.4 Would relief for interest so paid be restricted by reference
to “thin capitalisation” rules
The United States does not condition its exemption from
withholding tax on any minimum level of equity capitalisation of
the borrower. If a borrower is thinly capitalised, however, the
Internal Revenue Service (“IRS”) may assert that the debt is equity
for tax purposes, in which case the stated interest on the debt may
be subject to the withholding tax applicable to dividends.
There are, however, two statutory regimes that may potentially limit
the deduction of interest by a thinly capitalised U.S. borrower.
Under the “earnings stripping” rules, a borrower will defer, and may
lose, its deduction for “excess interest expense” (i.e., interest
expense in excess of 50% of cash flows) paid to or guaranteed by
certain related parties. In addition, a thinly capitalised U.S. issuer
can deduct only a relatively minimal amount of interest on
“corporate acquisition indebtedness” (generally, convertible
subordinated debt issued to fund an acquisition).
3.1 Is any withholding tax imposed on dividends paid by a
locally resident company to a non-resident
3.5 If so, is there a “safe harbour” by reference to which tax
relief is assured
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Yes. There is a 30% withholding tax on dividends paid by a U.S.
company to a non-resident shareholder. This tax can be reduced,
There is no safe harbour for determining whether debt will be
recharacterised as equity. The earnings stripping rules described
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