Internal Revenue Service Agrees to Settle Transfer Pricing Case Filed in the United States Tax Court Against Caterpillar Inc.

Internal Revenue Service Agrees to Settle Transfer Pricing Case Filed in the United States Tax Court Against Caterpillar Inc.

In a case that had been docketed in the United States Tax Court, Caterpillar Inc. v. Commissioner, Docket No. 10790-13 (2013), the petitioner-corporation and respondent, Internal Revenue Service, entered into and filed a stipulated settlement on July 31, 2014 with the Court.

Local Law Shopping Through “Derivative Benefits”

Local Law Shopping Through “Derivative Benefits”

Unlike U.S. persons who are subject to U.S. federal income tax on their worldwide income, foreign persons generally are subject to U.S. taxation on two categories of income: (i) certain types of passive U.S.-source income (e.g., interest, dividends, royalties and other types of “fixed or determinable annual or periodical income,” collectively known as FDAP), which are subject to a 30-percent gross basis withholding tax; and (ii) income that is effectively connected to a U.S. trade or business (ECI), which is taxed at graduated tax rates applicable to U.S. persons.