International Taxation and Foreign Tax Credits

International taxation and foreign tax credits Name: Institution: Date: The American tax code gives tax concessions to foreign business ventures through tax deferrals. Similarly, other incentives seek to maximize profits and increase competitiveness for such foreign ventures. For instance, there are no taxes on profits for money held abroad from profits of foreign subsidiaries, if the money does not find its way back in America. However, the taxation features on their own have different effects on investment abroad. The foreign tax credit system may allow neutrality, but may be either an incentive or disincentive depending on the circumstances. Even though, the corporation tax rate of the US is one of the highest in the industrialized world, investment abroad may prove beneficial to many businesspersons and organizations. Thus, it is necessary to look into the establishment of S corporations, and corporations that have subsidiaries in foreign countries that allow investors to take advantage of tax credits. There are stark differences between the taxation structures of many countries, but the main difference with the American taxation code is that it considers taxation on income earned in any country. The American tax system requires one to pay tax regardless of the income’s origin (Hufbauer & Assa, 2007). Thus, even for corporations, payment of taxes takes place regardless of the location, but there are rules on whether such earnings are earned or repatriated. At the same time, there are different rules whereby S corporations, partnerships and corporations pay taxes through the owners who have to file annual returns. In the case of corporations, there are payments on earnings on one side and different payments to shareholders in the form of dividends. A subsidiary is a separate entity from the parent company in the US, and the main advantage of this program is that subsidiaries of multinationals do not suffer taxation in the US. At the same...