Foreign Corporations Earnings and Profits
E&P can be defined as a concept that provides the foundation for characterizing dividends and return of capital. It is not directly defined in the Treasury regulations and over the years, has taken shape through administrative guidance(Perry & Weiner, 2016). The general law, however, is that a foreign company’s income should not be taxed unless it pays a dividend to its shareholders in the United States. This benefit of the United States deferring federal taxation of foreign company’s income until the companies pay a dividend to the shareholders in the United States is referred to as U.S tax deferral (Hines, 2009). A foreign company is defined when more than half of the company’s stock is owned by shareholders in the United States. A shareholder in the United States, on the other hand, is an individual who owns at least ten percent of the total voting power in the company.
The concept of deferral is essential, particularly to the corporations because the United States government provides an enabling, tax-free environment for the companies to grow. It is, however, important for the government to closely monitor E&P and be conscious of the various complexities and concerns that may stem from the international trade context. The proactive monitoring of E&P also serves to prevent the occurrence of taxation issues while also facilitating huge tax savings (Perry & Weiner, 2016). While it may appear simple, it is important that authorities observe due diligence in the computing and maintenance of E&P so that the tax complications are mitigated and the government is conscious of the international context.