Have a Tax Question? Ask a Tax Expert
Welcome to Just Answers! The expert you requested is not online now, so with your permission, I will assist you. I will do my best to help! This is actually an area that I am extremely familiar with, as I used to file over 100 Forms 5471 each year.
You do not need any way out, nor do you need any special financial statements. If you just acquired the company in July 2013, you do not have a reporting requirement yet. You report the acquisition of the CFC in the US tax year that includes the foreign corporation's year-end. You acquired the CFC during the year when the CFC's next year-end is April 30, 2014. That year-end will be in YOUR tax year that ends on December 31, 2014. So you will not have to report anything until NEXT year. You will always be a year in arrears, or behind, as long as you own the CFC.
If the company is a UK company, not only are the statements in UK Pounds, but they are also prepared in accordance with IFRS, International Financial Reporting Standards. You will have to convert not only to US$, but also to US GAAP basis
I hope this answers your question. If you have any more, please feel free to ask! I will be happy to answer. If you have found my answer helpful, please rate me highly. I would appreciate it!
Thanks again! Have a great weekend!
Thanks, XXXXX XXXXX and just saved me a ton of work. Also I would be interested to know if the IRS may deem the UK company to be a US person, and be fully taxable in the US, since I am now the majority shareholder, and I reside in the US.
Thank you for your very helpful answers. I just wanted to clarify something. I was led to believe that my share of profits (67%) would be taxable in my 1040 as subpart F income. So if the company made $10, $15 and $25 in the first three years, I would include my share of profits of $6.67 (67% of 10), $10 (67% of $15) and & $16.67 (67% of $25) in my 1040 as schedule C income. I would also take credit for my share of the taxes paid which be $2 (67% of $3), $3.33(67% of $5), and $6 (67% of $8). From what you say I was misled, and that I would only account for profits when I receive dividends.
I hope you are fit and well. I still would appreciate clarification of you last answer.
1. A UK Corporation (formed in the UK under the rules of the UK).
2. No business presence or investments in the US,
3. The UK Corporation ONLY earns real estate rental income from properties only from situated in UK.
4. US individual owns 67% of the UK Corporation and is a Director
5. The US Individual needs to complete Form 5471
6. There is no subpart F income to report
7. Dividends are reported when paid with specific rules for earnings pools and tax pools.
Would 6 and 7 be correct?
My partner (33% shareholder) and I (67% shareholder) wish to inject further monies into the CFC to expand the business. We prefer to make loans (rather than equity) since loans can repatriated from cashflow as opposed to equity are repatriated from profits (dividends) or capital. Capital repatriation requires long legal process (UK) to repatriate. However, charging interest on the loans is counter productive since it means we would just have to put more loans in to cover paying the interest paid by the CFC. We have two solutions:
(1) Charge no interest and make loans directly proportional to shareholding percentages _ therefore there is no transfer of value -
(2) Charge interest at the end of the term of the loan.
(1) is infinitely better because interest paid by a UK corporation to a an individual is subject to 25% withholding tax. AS a US shareholder I can recover that in my taxes but there is obviously a cashflow/paperwork issue. Secondly, I can request the withholding tax to be reduced to 0% under the US/UK double tax treaty, however, again that is a lot of paperwork, and as the amount of the loan is no more than $200,000 and the annual interest at 3% would be 6,000 pa - its not worth all the work. If I charge no interest would the IRS deem an interest charge - albeit as a cash taxpayer I have not received the money.
I wonder whether you had any ideas? I also heard that if no interest is charged the deemed interest could also be treated as a gift to the recipient. The truth is, that in my situation it is perfectly commercial, and sensible not to charge interest. I can see a transfer of value from me to the company but that value is only going to come back to me in the form of higher dividends or capital gains.