New York University School of Law

International Tax I & II

Fall 2016
Professor Victor Zonana

General Information and Syllabus

REQUIRED MATERIALS
John P. Steines, Jr., INTERNATIONAL ASPECTS OF U.S. INCOME TAXATION (6 TH
edition, 2015)
INTERNAL REVENUE CODE (latest edition)
INCOME TAX REGULATIONS (latest edition)
VERY STRONGLY RECOMMENDED
Boris I. Bittker and Lawrence Lokken, FUNDAMENTALS OF INTERNATIONAL
TAXATION (Student edition, Thomson Reuters, 2016-17) .
The treatise is available on-line via Westlaw Bittker & Lokken, FEDERAL TAXATION OF
INCOME, ESTATE AND GIFT, Part 9, Chapters 65-74.
OBJECTIVES
The aim of this course is to gain an understanding of the some of the principal US tax rules
that apply to (1) investment and business activity of foreign persons in the United States (socalled inbound taxation) and (2) investment and business activity of US persons in other
countries (so-called outbound taxation). This course combines the first and second of a
trilogy of courses that address most of the international aspects of US income taxation. The
third course (International Tax III) focuses on the other principal US tax rules that apply to
investment and business activity of US persons abroad, principally the controlled foreign
corporations (CFC) rules and the passive foreign investment company (PFIC) rules.
International Tax III has a substantial component that delves into the issues that arise from
cross-border corporate transactions including acquisitive and divisive reorganizations.
We will review initially the basic legal and economic principles that are the foundation of the
US international tax rules and focus briefly on possible approaches to structure the tax system
to provide relief for potential double taxation and the policy implications of such approaches.
We thus contrast a tax system such as ours, which provides for a limited tax credit for foreign
taxes, with the approach of certain other countries, which provide for partial or total
exemption of foreign earnings.

After this brief survey, we will plunge into the principal parts of this course. With respect to
inbound taxation, we will examine initially the rules related to residence and related
questions when is a foreign person considered a resident of the United States for taxation
purposes; under what circumstances may an individual renounce his US citizenship; we will
touch briefly on the tax consequences of a US corporation migrating to another country.
Our next focus will be on the US tax treatment of a foreign person whose income consists of
portfolio income (e.g., interest and dividends) and other income that is not connected with a
US business. The critical issues here are identifying both the character and the source of the
items of income. With respect to each category of income we will consider also the effect of
treaties (i.e., whether, as a result of the application of an income tax treaty between the
United States and the relevant county, the rate of US tax on US-source income is reduced to
nil or to a rate that is lower than the regular US rate).
We will then address the US tax treatment of foreign persons whose income arises in a
business context, including securities trading, real estate dispositions, the rendering of
services and sales of goods. We consider also the viability of existing rules as they apply to
more modern forms of commerce involving the use of intellectual property and electronic
commerce. Here also we will consider the effect of relevant income tax treaties and focus
particularly on treaty-related issues such as treaty overrides, treaty shopping, discrimination
and the use of so-called hybrid entities. Finally we will wrap up our consideration of
inbound taxation with a look at the US tax rules that attempt to mitigate advantages that may
be gained by a foreign corporation operating in the United States through a branch as
opposed to a subsidiary (the branch tax provisions of the Code).
At this juncture, we will turn the second principal part of the course, outbound taxation.
We will begin with an overview of the foreign tax credit rules and recurring general
principles that underlie the application of the rules and then turn our attention to certain
procedural and timing aspects. We then consider two critical issues (1) who is eligible to
claim a credit for foreign taxes and (2) what foreign taxes qualify as taxes that may be
credited against a taxpayers US tax liability.
We will then address the limitations that are imposed on a taxpayers ability to use a foreign
tax credit (the section 904 limitations). There is a general limitation and a complex regime
designed to discourage cross-crediting of foreign taxes imposed on various categories of
income (the section 904 basket limitations). Mercifully the basket limitations were
simplified going a few years ago, but we will spend a bit of time on the old rules that may
still have relevance today.
We then turn to the foreign tax credit rules with an analysis of the deemed-paid credit the
ability of a parent corporation to claim a credit against its US tax liability on account of the
foreign taxes paid by a foreign corporation from which it receives a distribution.
The limitations on the use of a credit for foreign taxes are a function of the taxpayers foreign
source taxable income and its worldwide taxable income. The determination of taxable
income obviously takes into account deductions. This requires us to apply a number of
technical rules (principally reflected in lengthy regulations) to allocate deductible expenses
among classes of income and to apportion those expenses between US and foreign source
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income. There are a number of specific rules that govern the allocation and apportionment of
expenses. We will focus on but a few, with the most important being the interest expense
an issue that is critical to most multinational enterprises.
We wrap up our consideration of the foreign tax credit with a close review of the issues
arising in attempts by taxpayers to enhance their ability to claim foreign tax credits and the
Governments efforts to thwart what are deemed abusive transactions.
The next major segment in outbound taxation is essentially a survey of the principal rules
and recent cases that address the ability to shift income from a high tax jurisdiction to a low
(or no tax) jurisdiction. This is the area of practice affectionately known as transfer
pricing. We will concentrate on the issues that arise principally with regard to the
development and exploitation of intangibles and consider specifically the Obama
Administration repeat proposals to tax currently excess returns associated with transfers of
intangibles offshore and to limit the shifting of income through intangible property transfers.
As many of you are aware, the Organization for Economic Development and Cooperation
(OECD) recently completed a massive project addressing a problem referred to as base
erosion and profit shifting (BEPS). The analyses and recommendations are reflected in
reports that address issues we consider throughout the course and call for countries to take
action to stem untoward base erosion and profit shifting. As we will see, the US already has
in place various rules designed that attempt to mitigate these activities and may consider new
rules in line with the OECD recommendations. As appropriate, we will consider the extent to
which the US is compliant with the recommendations.
APPROACH
The Syllabus (attached) sets out the assigned readings in the required materials. I have also
set out the relevant sections in the Bittker & Lokken (B&L) treatise that you will find
useful to supplement the materials in Steines. We will follow the traditional problemmethod approach for dissecting the relevant materials. It is important to have read and
digested the assigned materials and to have thought through answers to the problems before
coming to class. Your participation in the discussions is extremely important. I generally call
on students in the class to initiate and move along the discussion of a problem. I will
announce at the first class whether I will be relying on cold calling or adopting an on call
procedure. I will be looking for both rigorous technical analysis and demonstration that we
have considered the relevant policy issues
A cautionary note: As will become evident early on, the subject matter is complex. The
Code provisions and the regulations are at times deceptively clear and at other times
inordinately opaque. The problems and the discussion are detail-oriented. But, the
classroom discussion will (hopefully) help us make some sense of the intricacies, and sort out
the leaves, branches, trees and the forest. And I hope many of you will wind up so fascinated
and intrigued by the subject matter that, if given the opportunity, you may choose to make
this area of the tax law your professional calling.
To prepare for the class discussion, you may find it more useful to first skim Steines, have a
hard look at Bittker and Lokken as well as the Code and the regulations, and then return to
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Steines. The relevant Code and regulations sections to be studied are set out at the beginning
of the Steines parts. As time permits, I may post for each topic a set of guideposts to help
you focus on specific points. There may also be additional required and suggested readings
for each of the topics. Some of the additional readings will be focused on tax policy issues
it is important that you grasp early on the foundations of international taxation and the
policies that underlie the rules that we will be studying. Other readings will focus on recent
legislative, regulatory and judicial developments. The readings will be posted on a weekly
basis on NYU Classes. I may post additional problems for the some of the topics for which
Steines does not offer a problem. You should be checking NYU Classes regularly for
additional messages, changes in the syllabus, and questions to consider for the following
session of the class, etc.
Many students find it useful to refer to leading treatises or study aids to deepen their
understanding of what at times will appear to be most complex statutory provisions. In
addition to the strongly recommended Bittker and Lokken treatise, which can be purchased at
the Bookstore, you may wish to consult the following (available in the Library):
JOEL D. KUNTZ AND ROBERT J. PERONI, U.S. INTERNATIONAL TAXATION
(Warren, Gorham & Lamont, looseleaf edition)
JOSEPH ISENBERGH, INTERNATIONAL TAXATION (Third edition, Concepts and
Insights Series, Foundation Press, 2010)
BNA Foreign Income Portfolios (various dates)
This class is being recorded (videotaped) for on-line students. All of the videos will be
available to you. They are generally posted later in the day that a class is held.
EVALUATION
There will be an open-book, four-hour final examination at the end of the semester. Most
likely, it will be in the form of short answers (multiple choice). I will announce the definitive
format during the first week of classes.
The class meets on Tuesdays and Thursdays from 9:00 to 10:50 a.m. Please be prompt. I
will be posting office hours shortly and I will be available generally in my office (Room 615
Wilf Hall). I can be reached by e-mail at victor.zonana@nyu.edu and by telephone at (212)
998-6271 (office) or at (917) 833-0035 (cell).

INTERNATIONAL TAX I
SYLLABUS
(As of August 14, 2016, subject to updating)
September 1

Introduction
Supplementary Readings
Excerpts from Barker article (pp.4-7)
Excerpts from Musgrave article (pp.7-11)
B&L (Bittker & Lokken) 65.1.1 (Summary of US International Tax
Rules Introductory)
Residence and Related Questions
Steines, I.A. (pp.1 to top of 7)
Supplementary Readings
Excerpts from Shay, Fleming and Peroni article (pp.15-20)
Excerpts from Kaufman article (pp. 20-24)
Cook v. Tait (pp. 24-26)
Excerpts from Avi-Yonah (pp. 26-34 skim only)
Steines, V (pp. 599 to middle of 602)
B&L (Bittker and Lokken)
65.1.2 (US Persons)
65.1.3 (Foreign Persons)
65.1.4 (Foreign Corporations with US Owners)
65.2.1 to 65.2.4 (Resident and Nonresident Aliens)
65.2.8 (Treaty Residence Rules)
65.3.1 and 65.3.2 (Classification of Entities, up to Stapled
entities)
65.3.5 (Classification of Foreign Entities)
65.3.6 (Eligibility for Treaty Benefits)

September 6

Residence and Related Questions (contd)

Portfolio Income Debt Obligations
Steines, I.B.1 (pp. 11 to top of 14, 19 to 21, 28-29, 17-18, 29-33, 3339)
Steines, I.B.5 (pp.117-119)
B&L 73.1 and 73.2 (Sourcing generally; Sourcing of interest)
67.1 (Introduction to US taxation of Foreign ersons)
67.2.1(General Principles)
67.2.2 (Taxation of US source Interest and OID)
67.4.1 to 67.4.4 (Withholding Issues, including OID)
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Supplementary Readings
Excerpts from JCT Report (JCX-23-09) (pp. 35-41)
Problem 1 and Problem 5
September 8

Portfolio Income Debt Obligations (contd)

Portfolio Income Dividends and Stock Dispositions
B&L

73.3 (Sourcing of dividends)

73.6.1(Sourcing of gains)
67.2.10 (Sourcing of capital gains)
67.2.3 (paragraph 4 liquidating distributions; paragraph 5
dividend from foreign corporations and paragraph 6
treaty modifications)
Steines, I.B.2 (pp. 43-60)
Problem 2 and Problem 5
September 13

Portfolio Income Dividends and Stock Dispositions (contd)

September 15

Portfolio Income Substitute and Derivative Payments

Steines, I.B.3 (pp. 61-67)
B&L 67.2.3 (paragraphs 1, 1a. and 1b Dividend Equivalents and
Substitutes)
73.9.2 (Sourcing of income from NPCs)
Problem 3 and Problem 5
Portfolio Income Other Income (Royalties and Services)
Steines, I.B. 4 (pp.75-105)
B&L 67.2.4; 67.2.5 and 67.2.8 (Rents, Services and Royalties)
73.4.1 (Introductory)
73.4.2 (Services paragraphs 1 and 2 only)
73.5.1 (Royalties)
73.9 (paragraph 2 only)
Steines, I.B.4 (pp.69-74, 99-115)
Problem 4 and Problem 5

September 20

Other Income (contd)

Effect of Treaties (review)
Steines I.B.5 (pp.117-119)
B&L 67.2.9 (Other FDAP income)

September 22 and 27 Business Income ECI, Real Estate Operations, Securities

Trading
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Steines I.C.1 (pp. 121-127; 136-148)

B&L 67.6.1 (Introductory)
67.6.2 (U.S. Trade or Business)
67.6.6 (Election as to Real Property)
Problem 6, Question 1
Treaty and Pass-Through Issues
Steines I.C.1. (pp. 128-134, 153-163, 149-153, 164-173)
B&L 67.6.2 (paragraph 3 partnerships)
67.6.9 (Treaty Modifications)
67.6.3 (Effectively Connected Income from US Sources)
67.6.8 (Withholding)
Problem 6, Questions 2 and 3
September 29

Business Income Real Estate Dispositions

Steines, I.C.2 (pp. 175-184)
B&L 73.6.2 (Sourcing of Gain on Real Property)
67.7.1 through 67.7.6 (Gain on Disposition of US Real
Property Interests)
Problem 7

October 4

Business Income Compensation for Services, Pensions, etc.

Steines, I.C.3. (pp. 185-198)
B&L 73.4.1(Services, Introductory)
73.4.2 (Services Performed Partly in US -- omit paragraph 3)
Problem 8

October 6

Business Income Sale of Goods

Steines I.C.4 (pp. 199-217)
B&L 73.6.3 (Personal Property Held for Sale to Customers)
73.6.4 (Foreign Person with US Office)
73.6.5 (Other Personal Property)
Problem 9

October 11

Income from Intellectual Property and Electronic Commerce

Steines, I.D (pp. 231-241; 260-269)
B&L (Classification of Transactions in Intellectual Property)
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OECD, BEPS Action 1 Final Report (selected excerpts pp. 51-74;

104-106; 142-149; 167-180)
Congressional Research Service, Lunder and Pettit, Amazon Laws
and Taxation of Internet Sales: Constitutional Analysis (November
28, 2014)
October 13

Treaty Override, Treaty Shopping, Discrimination, and Similar

Activities
Steines, I. (pp. 271-273; 273-278; 278-287; 306-313
B&L 65.4.1 (Relationship between Tax Statutes and Treaties)
65.4.2 (Treaty Interpretation)
65.4.3 (Disclosure of Treaty-Based Positions)
67.3.1 (Treaty Benefits for Payments to Fiscally Transparent
Entities)
67.3.2 (Disregard of Conduit Entities (skim))
67.3.3 (Limitations on Treaty Benefits)
Problem 10

October 18

Branch Taxes
Steines, I.F (pp. 314-316; 321-327)
B&L 67.8 (Branch Profits Tax and Branch-Level Interest Tax)
Problem 11