Corporate Tax

Basswood provides our corporate clients with sophisticated tax planning and routinely solves complex corporate tax issues, ensuring that our clients can focus on growing their business with confidence.

Our experience advising on complex multi-country acquisitions and reorganizations, as well as leveraged buyouts using various ownership structures equips us to provide strategic tax planning for significant acquisitions, in both instances as tax free reorganizations or taxable acquisitions.

When it comes to clients’ transactions, we interpret, structure, and negotiate to maximize our client’s tax benefits and minimize tax costs. We offer creative and practical tax advice across a range of corporate and business matters, including mergers and acquisitions, business formation, reorganization, recapitalization, leveraged buyout, and resolution.

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Frequently Asked Questions

How should we structure our foreign operations to manage global tax (branch vs. subsidiary vs. holding company)?

Your global structure shapes how your business is taxed, how risk is managed, and how efficiently you can grow across jurisdictions. Key considerations include:

U.S. tax treatment, including exposure to Global Intangible Low-Taxed Income (GILTI)/ Net CFC Tested Income (NCTI), Subpart F, and Foreign-Derived Intangible Income (FDII)
State and local tax obligations in each operating jurisdiction
Liability protection across entities
Administrative complexity and ongoing compliance requirements

Common structures include:

Foreign branch – simpler to set up, but may result in immediate U.S. taxation
Foreign subsidiary (CFC) – often more tax-efficient with thoughtful planning
Regional holding company – useful for coordinating multi-country operations and investment flows

We model scenarios to help you choose a structure that supports growth while managing tax and complexity.

Do I need to form a separate U.S. legal entity (subsidiary), or can I operate as a foreign corporation/branch—and what drives that decision?

Key drivers are your planned footprint in the U.S. (scale, type of activity, physical presence), the long‑term vision (testing the market vs. building a permanent platform), and home‑country tax consequences (21% tax in the U.S. vs. higher tax rate in home country). Operating without a U.S. entity may work if you only sell into the U.S. through independent brokers and your business activities in the U.S. do not amount to having nexus in the U.S., which may avoid having an income effectively connected with a U.S. trade or business. Once you expect meaningful, ongoing U.S. operations, a U.S. subsidiary often provides cleaner income allocation, better limitation of U.S. taxable nexus, and clearer payroll and employment tax separation.

What level of activity in the U.S. creates “effectively connected income” (ECI) and triggers U.S. income tax for a foreign company?

Effectively Connected Income (ECI) generally arises when you are engaged in a regular, continuous U.S. trade or business, and income is connected to those activities. Typical indicators include having employees or agents with authority to conclude contracts in the U.S., operating a store, warehouse, or service office, or providing services physically in the U.S. Once you have ECI, the foreign corporation is taxed on net income (revenues minus related expenses) at corporate rates, plus potential additional taxes such as the branch profits tax.

If we’re only selling goods into the U.S. using a broker or independent agent, can we avoid ECI—and what would cause us to “trip” into ECI anyway?

Using an independent broker/agent that acts for many principals and only facilitates sales often does not, by itself, create ECI for the foreign seller. ECI risk increases if you:

Maintain a fixed place of business in the U.S. (office, warehouse with active functions).
Use dependent agents who work primarily for you and can bind you contractually.
Start performing value‑creating activities in the U.S. (manufacturing, repair, on‑site services).

At that point, it is usually advisable to re‑evaluate structure, often by interposing a U.S. subsidiary.

It is also imperative to review an applicable income tax treaty to determine your U.S. tax implications

If we provide services remotely (online/phone) from outside the U.S., does that create “effectively connected income” (ECI)—and how do dependent agents or contract authority change the outcome?

Services performed entirely outside the U.S. (for example, remote IT support from abroad) are generally sourced to, and taxed in, the country where the services are performed, and do not by themselves create ECI. The risk changes if you have dependent agents in the U.S.—individuals who mostly work for you and can negotiate or conclude contracts or perform core service functions on your behalf; they are often treated similarly to employees and can create a U.S. trade or business. Independent agents serving many clients usually do not create ECI.

What major federal tax incentives should we evaluate when launching U.S. operations (R&D credit, WOTC, bonus depreciation, industry-specific incentives)?

Common federal incentives include:

R&D credit for qualifying research expenditures, providing a dollar‑for‑dollar reduction of U.S. tax.
Work Opportunity Tax Credit (WOTC) for hiring certain targeted groups.
Bonus depreciation/accelerated depreciation for qualifying equipment and certain assets.
Industry‑specific incentives (for example, semiconductors and other targeted manufacturing).

You should map your planned activities (R&D footprint, hiring plans, capex profile, industry) to these regimes early, as they materially affect the after‑tax return of U.S. investment.

For R&D, what’s the benefit of locating activities in the U.S. (immediate expensing of domestic R&D, ability to amend prior returns, and interaction with the R&D credit)?

Under recent law changes, domestic U.S. R&D costs for qualifying smaller companies can again be immediately expensed rather than amortized over several years, and prior years (from the amortization period) may be corrected via amended returns in some cases. On top of the deduction, qualifying expenditures can also generate an R&D tax credit, which reduces tax dollar‑for‑dollar. When choosing where to place global R&D, you compare this U.S. regime with incentives offered by other countries, considering both current rules and political volatility.

Need guidance on a corporate tax matter?

Whether you are structuring a transaction, managing tax obligations, planning for growth, or navigating complex corporate tax issues, Basswood Counsel can help you make informed, commercially sound decisions.