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ResourcesCorporate and Tax AdvisoryUS Tax LawAre Amity Treaty Companies "Controlled Foreign Corporations"?

Are Amity Treaty Companies "Controlled Foreign Corporations"?

Transcript of the above video:

As the title of this video suggests, we are discussing Amity Treaty Companies and we are discussing them specifically in the context of US taxation and US tax liability. 

A major question that has arisen especially with respect to the Tax Cuts and Jobs Act, so called "Trump Tax" if you will, a question that popped into my mind is, "What is the tax liability to an Amity Company or the owner of an Amity Company as a result of the changes to the law with respect to so-called foreign corporations?" 

Many of those who are watching this video may be aware of things like the Global Intangible Low Tax Income regime, so-called GILTI, things like FDII, Foreign Derived Intangible Income, things like the Transition Tax etc. Now all of these came about as a result of the "Trump Tax", for lack of better term. That is what I am going to go ahead and call it as it was promulgated in Trump's Administration and passed by Congress under Trump, so we are going to go ahead and label it for the purposes of the rest of this video as so-called "Trump Tax". We will call it Trump Tax. So "Trump Tax" created all of these things and they are of a special concern to those corporations which are deemed "Controlled Foreign Corporations" by a US person; a US person may be a company, it may be an individual etc. but it creates a certain onus with respect to those entities which are considered Controlled Foreign Entities, Controlled Foreign Corporations. 

Now most folks have gotten into the nitty-gritty and we have too, with respect to certain aspects of our advisory practice here, but most folks have gotten down to the nitty-gritty with respect to things like calculating the GILTI formula, or calculating the formula related to things like erosion of the corporate base etc. Those types of analyses are very good and I think very necessary but I happened upon something that in my mind goes to very core of the entire issue with respect especially to Amity Companies here in the Kingdom and I wanted to go ahead and share it in this video. 

Now I have gone over this multiple different times. I am licensed in the United States including in the US Tax Court and I have studied this pretty well at length. It should be noted that specifically this does not necessarily deal with analysis directly of "Trump Tax" and the provisions of the provisions of  that recently promulgated law, but it does go to the heart of the matter as to whether or not the new provisions even apply to an Amity Company here in Thailand. The reason I bring this up is because most folks are looking at issues like control or the formula for dictating taxation,  my question was immediately or shortly after diving into this, and I have done a really deep dive into this in the past months, so for those who are unaware in the Kingdom of Thailand, Thailand and the United States share the US-Thai Treaty of Amity and the US-Thai Treaty of Amity basically dictates certain provisions and certain privileges, immunities and benefits that are granted to the citizens of both parties, namely Thailand and the US, when doing business in each other's jurisdictions. So, one of the major benefits to Americans operating in the Kingdom, including American Companies, is so-called National treatment. National treatment provides the same treatment as for example Thai Nationals doing business in Thailand. It provides the same protections to American businesses. Now that is about as far as I am going to go with respect to analysis of how that pertains to Thailand but a major question that was vexing me greatly and it still does in many ways, pertains to US taxes. Before we proceed with any tax analysis I want to go ahead and preface it with this.

This should not be viewed as definitive tax advice for specific circumstances. This is for informational purposes only and quite frankly I am kind of speaking out loud. This is me posing questions and interesting aspects of the law but it should not be viewed as a definitive legal opinion regarding the tax situation as it stands nor on any one specific tax situation nor tax advice pertaining thereto. So do not look at this video as anything other than informational and it should not be viewed as definitive and it should not be relied upon when making your own personal decisions with respect to your own tax filings.  

So as I stated, what we have been looking at is the ramifications of Trump Tax; again GILTI, FDII, things like the transition tax etc.  A question came to my mind when I was looking at the regs, and the law itself. It deals with Controlled Foreign Corporations and that got me thinking. I said "well what is a foreign corporation?" Rather than worrying about control or the formulas associated with the implementation of these new tax codes, my question was "are these companies foreign?" so I went ahead and looked it up and I found according to 26 US Code 7701 85 the term foreign is defined as and I am quoting here: "the term foreign when applied to a corporation or partnership means a corporation or partnership which is not domestic." So a Foreign Corporation is defined in the negative. You have to determine what a Domestic Corporation is in order to determine what a Foreign Corporation is. So I went over and looked at 26 US Code 7701 84, the term domestic is defined as and I am quoting: "the term domestic when applied to a corporation or partnership means created or organized in the United States or under the Law of the United States or of any state unless in the case of a partnership the secretary provides otherwise by regulations."  I am going to go back and paraphrase this here in a moment but I want to go ahead and also quote directly from the IRS website, that is irs.gov, quoting directly: "a Corporation created or organized in the United States or under the law of the United States or of any state or the District of Columbia." That is the definition of a Domestic Corporation. I want to go back and paraphrase this now from 7701 84 "the term domestic when applied to a corporation means created or organized under the law of the United States."  So I am paraphrasing what we are specifically talking about here so "a corporation created or organized under the law of the United States." It sounds pretty simple right? "created or organized under the law of the United States". So moving forward. The US - Thai Treaty of Amity is a Treaty. It was ratified by the Senate, by I believe 69 - 31 votes in the year 1969 and it was promulgated by the President  of the United States, at the time Lyndon Johnson promulgated it; it was ultimately ratified in 1969. 

Now Article 2 of the US Constitution states that "the President shall have power by and with the advice and consent of the Senate to make treaties provided two-thirds of the senators present concur". Now it doesn't actually say it has to be what we call "ratified" but it just says "upon advice and consent" and it is well known that a majority vote in the Senate to confirm a treaty, to ratify a treaty, clearly they have advised and consented on the Treaty. So the President promulgates, the Senate advises and then consents, in this case 69-31 back in the year 1969, and the Treaty is then ratified.

So further, under article 6 of the United States Constitution which is sometimes referred to as the Supremacy Clause it reads thusly. "This Constitution and the laws of the United States which shall be made in pursuance thereof and all Treaties made, or which shall be made under the authority of the United States, shall be the supreme law of the land and the judges in every state shall be bound thereby, anything in the Constitution or laws of any state to the contrary notwithstanding." So let me go back and just get to the salient point here, "all treaties made shall be the supreme law of the land." Okay? 

So let's go back to the term domestic. Again 26 US Code 7701 84. The term domestic when applied to a corporation means created or organized under the law of the United States pursuant to article 6 of the United States Constitution the ratified US -Thai Treaty of Amity is United States law; it is the supreme law of the land due to its ratification; the fact that it is a Treaty. It is my opinion that companies created or organized under that Treaty are, notwithstanding the fact that they are in Thailand, domestic Corporation pursuant to the definition of the 26 US Code 7701 84 because they were created and/or organized under the Law of the United States namely the Amity Treaty and most notable there is the viewers should keep in mind that pursuant to Thai Law and specifically the foreign business act here in the Kingdom, in most cases of  foreign ownership of Thai companies there has to be a minority ownership by Foreign Nationals but pursuant to the provisions of the Treaty, and we have gone into that at length in other videos, pursuant to the provisions of the Treaty, due to the national treatment granted under the terms of the Treaty, the company here in Thailand would be organized in a different way. In fact it would be created in a different way for that matter too but in either case, but for the Treaty, Americans would have to operate under the Foreign Business Act, but thanks to the Treaty  which is US Law pursuant to article 6 of the US Constitution, thanks to the Treaty, American Amity Companies enjoy different benefits and a different type of certification here in the Kingdom in order to operate and they are definitely created and/or organized depending on the circumstances of the company, under US Law. Therefore in my opinion these companies could be considered  domestic corporations and therefore not subject to certain provisions of the so-called "Trump Tax" due to the fact that they are “Controlled Domestic Corporations” not “Controlled Foreign Corporation”, notwithstanding the fact that they may be legal entities in another country and may be physically present in another country, Treaty Law, the law that allows them to be organized in the way in which they are, creates the domesticity element if you will because the US - Thai Treaty of Amity is United States law pursuant to article 6 of the United States Constitution, also known as the Supremacy Clause.