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Tax Series e5471

In large part, the growth of large US corporation can be attributed to the growth of overseas operations more so than the growth of US domestic business.As business overseas grows, the stewardship with regard to the overseas operations became significantly more important. The most significant part of that stewardship is US compliance on controlled foreign corporations (CFC) by way of Form 5471 compliance

Completion of Form 5471 requires an in-depth understanding of international tax rules as well as sufficient technical knowledge to manage related data efficiently. After the issuing of Check-the-box regulations, preparation of Form 5471 became even more complex as many companies adopted the Check-the-box structure as part of their international planning to maximize tax benefits. In response, the IRS has been modifying its administrative rules to collect more information in the form of additional information requests and the issuing of additional forms (Forms 8865 and 8858). At the same time, many companies do not have an adequate amount of human resources to collect data, organize it, perform necessary calculations and ultimately file Form 5471

An even more important issue is that of related historical data maintenance. The preparation of Form 5471 requires historical data to be correctly maintained in order to process all calculations that are required to produce accurate tax results. For example, the application of the widely known and simple to follow rule of “high tax exception” uses a US Dollar tax pool coupled with functional currency earnings and profits (E&P). This mixture of currency attributes creates disparity between functional currency based effective tax rate and mixed currency effective rate. Consequently, this can cause a potentially unexpected outcome from high tax exception. Further, the tax rate is based on the tax pool rate rather than the current year effective tax rate. Thus, it behooves the companies to maintain a multi-year tax pool properly even for simple calculations such as the high tax exception

International tax compliance is littered with complex rules – current year E&P calculation that requires the local statutory book to be transformed to US E&P by way of US GAAP adjustment and E&P adjustments, reporting of GAAP adjusted balances to form, computation of adjusted foreign base company income that requires sourcing of income based on the definition of “item of income” and related allocation and apportionment of expenses, application of the look-through rule for the income sourcing, application of the same country exception as part of the look-through rule, exception to the same country exception rule, application of de minimis and full inclusion rule, high tax exception rule, full inclusion rule in connection with the high tax exception rule, current year E&P limitation rule, Subpart F income recapture and recharacterization rule, qualified deficit rule, hovering deficit rule, deficit carry forward rule, and so on.This seemingly endless series of rules must be applied in the correct order in order to produce an accurate outcome while maintaining precise historical attributes. If it isn’t abundantly clear yet, international compliance is far from easy.

In an effort to substantially ease the difficulty of these tasks without compromising the integrity of the required calculations, Tax Technologies, Inc. has developed the e5471 module which manages to encapsulate international tax rules by way of a step-by-step process embedded in Tax Series. By integrating the filing of international compliance entirely with data collection, TTI has simplified the process entirely. At the same time, we further seek to make our client’s compliance a value added experience by way of integrating the source data and enhancing the output from the required data input.For example, we can produce a dynamic organizational chart that can be used as part of international ax planning, produce planning scenarios from the compliance data, produce key planning data as part of standard reports so it can be used by planners, and provide step-by-step Distribution Planning so that the effect of planning can be easily quantified.

Control the Problem

With a Controlled Solution

 For Controlled Foreign Corporation compliance - Form 5471

General Features

  • Allows for integrated web-native data collection
  • Import all data needed for all entities
  • Utilizes a multi-year database to reduce data redundancy
  • Handles many general ledger data sources
  • Lets users map unstandardized data into a standardized chart of accounts format
  • Provides flexible automatic adjustments
  • Provides flexible user configuration of workpapers for E&P computation
  • Provides flexible user configuration of workpapers for sourcing
  • Grants efficient sourcing by way of master sourcing
  • Produces organizational structure with user configurable information
  • Handles simple to complex organizational structures computations including check-the-box rules, and foreign partnership rules
  • Utilizes web-native software allowing global allocation of work /li>
  • Allows for easy to follow e-filing validation

Calculation Capabilities
  • Computes current-year earnings and profits
  • Lets users source income and directly allocate or apportion expenses using flexible methods
  • Applies the related party look-through rules for accurate income characterization
  • Allows for automated handling of circularity if applicable
  • Applies the De Minimis and Full Inclusion tests