Structuring The International Joint Venture Partnerships and Corporations
The most basic – and most important decision that a U.S. partner in an International Joint Venture (IJV) will need to make is whether the foreign business entity is a partnership or corporation. As difficult as this decision often is, with respect to domestic businesses, it is infinitely more difficult with respect to foreign entities.
For starters, the foreign jurisdiction will likely not even have “corporations” or “partnerships” at all, but a potpourri of strange-sounding entities that may or may not correspond to what we understand in the U.S. to be corporations or partnerships. For example, if the IJV will be located in Germany, will it be an “Aktiengesellschaft” or a "Gesellschaft mit beschränkter" (“GmbH”), or something else? Needless to say, it is foolhardy to attempt to traverse this minefield without the assistance of knowledgeable local counsel. And let’s not forget that the decision whether or not the foreign entity will be a corporation or a partnership should be made from a U.S. not foreign point of view.
- Partnerships or Corporation- General Tax Principles
An IJV that elects to be taxed as a partnership for U.S. tax purposes will be taxed in much the same fashion as a domestic partnership, i.e., the partnership will be a “pass-through” entity, with the partnership itself not subject to tax and the partners subject to tax on their allocable shares of partnership income and loss.
Read Full Article Here
If, as is often the case, the venture expects to incur losses in the first year of years of operation, operating in partnership form will result in the U.S. being able to use the IJV’s losses against its U.S. or other foreign income. If the IJV is taxed as a corporation, the losses cannot be allocated to the U.S. parent.
Structuring Foreign Investment in the U.S.
by Jacob Stein on December 12, 2014
Location: CalCPA International Tax Conference - San Francisco
International Business and Taxation
by Jacob Stein on December 16, 2014
Location: Rossdale CLE Live Webinar
Lawyers' Guide to International Taxation
by Jacob Stein on January 16, 2015
Location: State Bar of California Board of Legal Specialization - Pasadena, CA