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Chapter 1 Corporations And Corporate Income Notes

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MCL - Corporate Taxation Topic 1 (Part 1) - Corporations and Corporate Income Mind Map UK "Corporation" Wide/Closely Held

 CTA S1121
 ITA S992
 CTA S439 [A]

General Tax Base




CTA 2009 S2(1) CTA 2009 S1(2) CTA 2009 S35 CTA 2009 S46(1)

Group Relief


















CTA S37 CTA S45 CTA S99 CTA S130(2) CTA S152 CTA S1154(3) CTA S137(1) CTA S153(1) CTA S143(1) CTA S143(2) TCGA S171(1) TCGA S171A(1) CTA2009 S2(1) CTA 2010 S18 FA 2012 S61(1) FA2013 S5(1) CTA 2010 S34(1) &(2) ITEPA 2003 S49(1)

Tax Treatment

US
 IRC S7701(a)(3)





IRC S1361(a)(1) IRC S542(a) IRC S11(a) IRC S63(a) IRC S61(a) IRC S446 (a)




IRC S172 IRC S1501 IRC S1504(a)(1) IRC S1211(a)












IRC S11(a) IRC S11(b)(1) IRC S448(d)(2) IRC S55(a) IRCS531 IRCS532(a) IRCS533(a) IRCS535(a) IRC S535(c)(1) IRC S541 IRCS1363(a) IRCS1366(a)(1)

Germany
 KStG S1(1)








KStG S7(1) KStG S8(1) EStG S2(1) EStG S5(1) EStG S10d(1) EStG S10d(2) KStGS14 KStG S16

 KStGS23(1)

MCL - Corporate Taxation

Topic 1 - Corporations and Corporate Income Abbreviation Corporate Tax - CT Minus - (-)

1. Introduction a. Corporate Income Tax System: The income tax system as it applies to corporations and the members. b. Three (3) fundamentals in income taxation: (i) Payments made and received: allocation, quantification, timing and characterization
 Who makes the payment, who receives the payment
 Allocation: should the parent company make the payment or subsidiary company makes the payment or both since both income and liability do not line together?
 Qualification: convert income to liability
 Timing: critical for financial report, if can't make the tax, defer it. When is the period regconised?
 Characterisation: fundamental character of the payment depends on the way we made that payment (how you label that) i.e. the income which we received, we can label it as "interest, dividend and etc.", thus it will determine what type of tax will be imposed. (ii) Calculation of (net) income (iii) Tax treatment of a person with respect to the income c. What is a corporation?
(i) How does the introduction of corporation affect the taxation? Focus on the separate legal personality. In UK, partnership has separate legal personality. (ii) Plain Vanilla: An artificial entity recognized as an independent person by the law with capital or ownership interests divided into shares that are freely transferable

MCL - Corporate Taxation (iii)

(iv)

What are the consequences of separate legal personality for the purposes of income tax? For instance, the taxation on the resources of a corporation which includes corporation income and income of the shareholders can result in double taxation. Focus on three (3) artificialities:
 Corporation as deriving income
 Dividends as a source of income
 Shares as an asset

2. Comparison of Corporate Income Between Different Jurisdiction Country

Definition of "Company"/ "Corporation"

Widely/Closely Held Corporation

UK

CTA 2010 s. 1121 [ITA s. 992]: "company":

CTA 2010 s. 439 [A] "close company" is a company under the control-


any body corporate or unincorporated association; does not include a partnership, a local authority or a local authority association.

Burrell, an unincorporated association primarily requires:

1. 2 or more persons bound together by mutual undertakings for one or more non business purposes

2. each having mutual duties and obligations

3. in an organisation which has rules which identify in whom control of it and its funds rest and on what terms

4. which can be joined or left at will

(a) of 5 or fewer participators, or (b) of participators who are directors. A company is not a close company if it is non-resident [s. 442] or if 35% of the voting rights of the company are allotted to the public and quoted [s. 446] or the company is controlled by non-close companies [s. 444].

MCL - Corporate Taxation Trust - has personal capacity but not "company" as there is a separate ownership over the property. Trust is not going to be taxed because in UK, it is not used to operate a business. US

IRC s. 7701(a)(3): "corporation": associations, joint-stock companies, insurance companies. Morrissey: Supreme Court: an organisation will be treated as an association if the corporate characteristics are such that the organization more nearly resembles a corporation than a partnership or trust. What corporate characteristics do you think might be relevant? US has:

different state corporate laws and one Federal Tax law. the double taxation - the corporate will be taxed on the income and shareholder will be taxed on the dividend.

Limited Liability Statute never said that Limited Liability Company is corporation for the federal tax purpose. The Structure of LLC is complicated as it can be whole transparent or it can be divided into series and be treated as corporation. US Check-the-box Regime (means the noncorporate business entities may elect out of the

IRC s. 1361(a)(1) "S corporation" =>a small business corporation for which an election under section 1362(a) is in effect for such year... (b)(1) … "small business corporation" => a domestic corporation which is not an ineligible corporation and which does not(A)

have more than 100 shareholders,

(B) have as a shareholder a person... who is not an individual, (C)

have a nonresident alien as a shareholder, and

(D)

have more than 1 class of stock.

IRC s. 542 (a) "personal holding company" => any corporation (other than a corporation described in subsection (c)) if(1) At least 60% of its adjusted ordinary gross income... for the taxable year is personal holding company income... and (2) At any time during the last half of the taxable year more than 50 % in value of its outstanding stock is owned, directly or indirectly, by or for not > 5 individuals

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