Spotlight: tax residence and fiscal domicile in USA

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Tax residence and fiscal domicile

i Corporate residence

Tax residence in the United States is based on a corporation's place of incorporation, and not where it is managed or controlled. In some circumstances, a non-US corporation can elect to be treated as a US corporation.⁴⁰ In other circumstances, a non-US corporation may be deemed to be a US corporation, particularly when a non-US corporation has engaged in a cross-border business combination with a US corporation.⁴¹

ii Branch or permanent establishment

A non-US person will be considered to be engaged in a US trade or business if the non-US person conducts sufficient activities in the United States. The non-US person's income that is effectively connected with this US trade or business generally is subject to US taxation on a net basis.⁴² There is no fixed threshold for when the activities of a non-US person will constitute a US trade or business, but a non-US person with regular, substantial and continuous activities, whether conducted directly or through agents, will be considered to be engaged in a US trade or business. Non-US corporations are also subject to a 30 per cent branch profits tax, which applies to dividend equivalent amounts that arise from actual or deemed distributions from the United States⁴³ and is subject to reduction or elimination under an applicable US income tax treaty.

If a non-US entity is a resident of a jurisdiction with which the United States has an income tax treaty, and this entity is eligible for benefits under the treaty, the entity will generally only be subject to tax on its business profits that are attributable to a US permanent establishment (PE) maintained by the non-US entity. The PE standard generally requires a non-US entity to have a greater nexus with the United States than is required to be considered engaged in a US trade or business. The relevant treaty and US law provide rules regarding the definition of a PE and, if a PE exists, the amount of income and expenses that are attributable to that PE and subject to US tax.