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34 SOI Bull. 1 (2014-2015)

handle is hein.tera/stadeint0034 and id is 1 raw text is: Foreign-Controlled Domestic Corporations, 2011 or Tax Year 2011, some 76,793 foreign-controlled domes- tic corporations (FCDCs) collectively reported $4.6 tril- lion of receipts and $11.7 trillion of assets.' While Federal income tax returns for FCDCs accounted for just 1.3 percent of all United States (U.S.) corporate returns, they made up 16.2 percent of total receipts and 14.4 percent of total assets.2 Foreign business activity in the U.S. can take several forms, including corporations. A foreign investor may own stock in a U.S. (i.e., domestic) company or one that operates in the U.S. as a branch of a foreign corporation.3,4 The focus of this article is FCDCs, which are domestic corporations controlled by foreign per- sons. This control is ownership by one foreign person, di- rectly or indirectly, of 50 percent or more of a U.S. corpora- tion's voting stock, or 50 percent or more of the value of all of the corporation's stock, at any time during the accounting period.5,6 A person in this context is an entity, including an in- dividual, corporation, partnership, estate, or trust. (See Foreign person and Constructive ownership rules in the Explanation of Selected Terms section of this article.) Total receipts for FCDCs rose substantially, by 13.1 percent, compared to 8.2 percent for all corporations between 2010 and 2011. FCDCs accounted for 16.2 percent of total receipts re- ported by corporations in 2011, up from 15.5 percent in 2010. Total receipts includes all income actually (as opposed to constructively) received by a corporation and reported to the Internal Revenue Service (IRS) for the tax year. Net profits, or net income (less deficit), reported by all FCDCs for tax purposes under the Internal Revenue Code de- creased significantly to $79.8 billion for 2011, which was 19.5 percent lower than the $99.2 billion for 2010. Placed in con- text, net profits for all corporations totaled $1.3 trillion for 2011, a 2.5-percent decline from the $1.4 trillion for 2010. FCDC net profits accounted for 6.0 percent of all net profits reported by corporations for 2011, down from 7.3 percent from the previ- ous year. About 43 percent (33,358) of FCDCs reported positive profits (i.e., net income) totaling $166.5 billion with taxable income (i.e., income subject to tax) of $130.5 billion for 2011. The U.S. tax liability (i.e., total income tax after credits) of FCDCs was $35.7 billion for 2011, up 7.6 percent from the prior year. In comparison, the U.S. tax liability reported on all corporate returns was $220.9 billion for 2011, slightly less than that for 2010. FCDCs accounted for 16.2 percent of the 2011 U.S. tax liability of all corporations, up from 14.9 percent for 2010. Tax Return Forms Foreign-controlled domestic corporations report Federal income tax information on several forms. These are: (1) Form 1120, U.S. Corporation Income Tax Return; (2) Form 1120-L, U.S. Life Insurance Company Income Tax Return; (3) Form 1120- PC, U.S. Property and Casualty Insurance Company Income Tax Return; (4) Form 1120-REIT, U.S. Income Tax Return for Real Estate Investment Trusts; and (5) Form 1120-RIC, U.S. Income Tax Return for Regulated Investment Companies. The FCDC statistics include data from these tax returns, unless oth- erwise stated. Data for all corporations include (unless otherwise stated) these same five forms and two types filed by domestic corporations: Form 1120-A, U.S. Corporation Short-Form Income Tax Return, and Form 1120S, U.S. Income Tax Return for an S Corporation. One other form included in the corpo- rate total is Form 1120-F, U.S. Income Tax Return of a Foreign Corporation, for foreign corporations with income effectively ' Data for Tax Year 2011 are based on FCDC income tax returns with accounting periods ending between July 2011 and June 2012. (See the Period Covered subsection under the Data Sources and Limitations section for additional information.) For additional Tax Year 2011 statistics covering foreign-controlled domestic corporations, see Tables 24 and 25 of Statistics ofIncome-2011, Corporation Income Tax Returns, IRS Publication 16 (http://www.irs.gov/uac/SOI-Tax-Stats-Corporation-Complete-Report). Statistics for tax years prior to 2011 are available in earlier editions of Publication 16. Additionally, for 2010 statistics covering FCDCs, see Hobbs, James R., Foreign-Controlled Domestic Corporations, 2010, Statistics ofIncome Bulletin, Summer 2013, Volume 33, Number 1. In addition, FCDC data are included on the IRS Website at http://www.irs.gov/uac/SOI-Tax-Stats-Foreign-Controlled-Domestic-Corporations. 2 Total corporate data referenced throughout this article come from: (1) Statistics ofIncome Bulletin, Publication 1136, selected issues; (2) Statistics ofIncome-Corporation Income Tax Returns, Publication 16, selected years; (3) Source Book of Statistics ofIncome-Corporation Income Tax Returns, Publication 1053, selected years; and (4) unpublished Statistics of Income tabulations. Sections 7701(a)(4) and (5) of the Internal Revenue Code define a domestic corporation as one created or organized in the United States or under the laws of the United States or any State. A foreign corporation is one which is not domestic. In addition to the foreign-controlled domestic corporations study discussed in this article, the Statistics of Income program conducts a separate study covering branches of foreign corporations operating in the United States. For the most recent statistics from that study, see Tables 10 and 11 that cover branch operations of foreign corporations with income effectively connected with a U.S. trade or business, in Statistics ofIncome-2011, Corporation Income Tax Returns, IRS Publication 16. Statistics for tax years prior to 2011 are available in earlier editions ofPublication 16 and on the IRS Website at http://www.irs.gov/uac/SOI-Tax-Stats-Foreign-Corporations-With-U.S.-Business-Operations. This study excludes returns of domestic corporations with stock owned by a single foreign person of49 percent or less. However, the tax forms filed by domestic corporations do indicate the presence of 25-percent to 49-percent foreign owners, and the Statistics of Income program does separately compile data on these domestic corporations. For 2011, some 5,726 returns indicated a level of foreign ownership between 25 percent and 49 percent. These companies reported $229 billion of assets, $104 billion of receipts, $6 billion of taxable income, and $2 billion of total income tax after credits. All of these amounts were small in comparison to data for the corporations with at least 50-percent foreign ownership. The FCDC study also excludes domestic corporations with only foreign portfolio investors. A foreign portfolio investor, having only a minimal interest in a domestic company, exerts no control over the management of a domestic corporation, except to the extent, for example, ofthe right to vote in corporate stockholder meetings. A foreign portfolio investor primarily seeks dividend payments, an increase in the company's stock value, or both. 6 Returns of certain domestic companies that are effectively controlled by foreign persons, i.e., those public companies in which control may be exercised with as little as 10 percent to 20 percent of the stock holdings, are excluded from both the 50-percent-or-more and the 25-percent to 49-percent tabulations. Tax return forms filed by domestic corporations do not include information about foreign persons with less than 25-percent stock holdings.

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