Branch profits tax
This additional income tax is imposed by the IRS on foreign companies that earn profits from their U.S. business operations. Foreign companies pay the BPT as well as the normal income tax on their U.S. profits. You calculate it as a percentage of after-tax profits.
A foreign corporation that is engaged, or determined to be engaged, in active conduct of a U.S. trade or business is subject to the Branch Profit Tax.
Branch Profits Tax -- Basic Rules:
- Section 884(a) imposes a “Branch Profits Tax” (BPT) equal to 30% of the “dividend equivalent amount” (DEA) of a foreign corporation.
- In addition to the net basis income tax, BPT is imposed by section 882(a) on a foreign corporation’s ECI. It is designed to maintain parity between foreign corporations operating in subsidiary form with those operating in branch form.
- BPT generally applies when the earnings of a U.S. branch are not reinvested in the foreign corporation’s U.S. trade or business or the U.S. branch’s previous earnings are dis-invested.