International Tax Review is part of the Delinian Group, Delinian Limited, 8 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 00954730
Copyright © Delinian Limited and its affiliated companies 2023

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

US Inbound: IRS international practice units



Jim Fuller

David Forst

As a part of the IRS Large Business & International Division's knowledge management efforts, international practice units have been developed through internal collaboration and serve as both aids and training materials on international tax issues. They are not official pronouncements of law, and cannot be used, cited or relied upon as such. The IRS issued two new inbound international practice units in July 2015: non-services FDAP [fixed or determinable, annual or periodical] income; and branch-level interest tax concepts. The practice unit dealing with branch-level interest tax concepts provides a pretty good analysis of the rules under § 884(f). A branch-level interest tax is composed of two parts: a withholding tax imposed on interest paid by a US branch to a foreign person (referred to as branch interest) and a tax imposed on the excess of the foreign corporation's interest allocable to income connected to effectively connected income over its branch interest (referred to as excess interest). This practice unit would provide a good review for someone interested in understanding § 884(f).

The non-services FDAP income practice unit focuses on royalty income as an example. The IRS examiner is directed to determine whether the foreign corporation licensor (FC) has an office in the US through which it licenses software to other customers. The IRS examiner is directed to determine whether FC has employees in the US who provide aftermarket technical services related to the software. These are important facts in analysing whether the royalty income would be treated as effectively connected with a US trade or business. The IRS examiner is also told to confirm that the software is licensed and not sold (sale of copyrighted articles). The practice unit provides a reasonably thorough approach to auditing these transactions.

The practice units make references to IPNs (international practice networks). These are IRS employee groups that network in designated areas to broaden, enhance, and share their experiences. They are, more or less, groups of experts on designated issues.

The non-services FDAP income practice unit states that the examiner should consult with the Repatriation/Withholding IPN to determine when the taxpayer's activities create effectively connected income. It also states that the examiner, on a different point, should consult with IRS counsel and the Jurisdiction-to-tax IPN for guidance. The branch-level practice unit refers the examiner to the Treaties IPN for assistance in determining general treaty eligibility including the qualifications under a limitation on benefits article.

Jim Fuller ( and David Forst (

Fenwick & West

Tel: +1 650 335 7205; +1 650 335 7274


more across site & bottom lb ros

More from across our site

Two months since EU political agreement on pillar two and few member states have made progress on new national laws, but the arrival of OECD technical guidance should quicken the pace. Ralph Cunningham reports.
It’s one of the great ironies of recent history that a populist Republican may have helped make international tax policy more progressive.
Lawmakers have up to 120 days to decide the future of Brazil’s unique transfer pricing rules, but many taxpayers are wary of radical change.
Shell reports profits of £32.2 billion, prompting calls for higher taxes on energy companies, while the IMF warns Australia to raise taxes to sustain public spending.
Governments now have the final OECD guidance on how to implement the 15% global minimum corporate tax rate.
The Indian company, which is contesting the bill, has a family connection to UK Prime Minister Rishi Sunak – whose government has just been hit by a tax scandal.
Developments included calls for tax reform in Malaysia and the US, concerns about the level of the VAT threshold in the UK, Ukraine’s preparations for EU accession, and more.
A steady stream of countries has announced steps towards implementing pillar two, but Korea has got there first. Ralph Cunningham finds out what tax executives should do next.
The BEPS Monitoring Group has found a rare point of agreement with business bodies advocating an EU-wide one-stop-shop for compliance under BEFIT.
Former PwC partner Peter-John Collins has been banned from serving as a tax agent in Australia, while Brazil reports its best-ever year of tax collection on record.