Is International Taxation Really Necessary?
ACC 568 (Int’l Tax plnng) “Is International Taxation Really Necessary?” Use the Internet and / or Strayer Learning Resource Center to research the impact of international taxation on U.S. competitiveness. Suggest at least two (2) advantages and two (2) disadvantages of international taxation. Analyze the economics of international taxation. Based on your analysis, create an alternative to international taxation then evaluate how your alternative impacts foreign investments CHAPTER 1 INTRODUCTION · 1.01 Growth of International Trade Technological improvements in communications and transportation continue to make the world smaller and create a climate that is ripe for international trade. Consider the changes during the past 50 years. Commerce Department data show that for all of 1960 the United States exported just under $26 billion and imported approximately $22 billion of goods and services. For the month of June 2011 alone, exports of goods and services were more than $170 billion while imports were more than $223 billion. How things have changed. · 1.02 Economics of International Trade Why do foreign taxpayers invest in the United States or U.S. taxpayers invest abroad? The following short excerpt from a venerable first-grade reader is instructive: 2 Mr. Smith had a horse. He used to ride his horse to work. One day Mr. Smith said, “I want to get a car to go to work.” Mr. Smith went to a place that sells cars. He asked, “Will you give me a car if I give you my horse?” The man who sells the cars wanted a horse. He took the horse and gave Mr. Smith a car. Both men were happy.* Trade makes both parties better off. In this respect international trade is no different from domestic trade. · 1.03 The Central Problem of International Taxation When there is bilateral trade, the governments of both trading parties may want to collect a tax on any gains from the trade. To change slightly the example above, suppose that Mr. Smith exchanged cash instead of a horse for the car. Suppose further that the seller of the car is a U.S. citizen who resides in the United States, the car is manufactured in Canada, and Mr. Smith lives in Canada. The United States may claim the right to tax any gain on the sale of the car because of the seller’s residence or citizenship, and Canada may claim taxing authority because the car was manufactured in Canada and sold in Canada to a Canadian resident. Overlapping claims of taxing authority—sometimes referred to as juridical double taxation—can create coordination difficulties. 3 To illustrate the necessity for coordination, suppose that Canada imposes a 50 percent tax on any gains occurring in Canada, and the United States imposes a 50 percent tax on any gains wherever they occur if earned by a U.S. resident (or citizen). Under these assumptions, the combined tax rate is 100 percent, the entire gain on the transaction would be taxed away, and it is likely that the transaction would never take place. The loss of the transaction would hurt both parties, others who would benefit from the trade (e.g., employees of, and suppliers to, the manufacturer) as well as the treasuries of Canada and the United States. The study of international tax is the study of coordinating the tax authority of sovereign countries. In the example just considered, potential double taxation arises because one country claims taxing authority based on the residence (or citizenship) of the taxpayer and another country claims taxing authority based on where the income arises. Juridical double taxation can also arise when each of two countries claims a taxpayer as a resident or where each of two countries claims that income arises in that country. Countries generally attempt to combat juridical double taxation both through unilateral domestic legislation and bilateral tax treaties with other countries. See infraChapters 5 and 8. · 1.04 Economics of Juridical Double Taxation From an efficiency point of view, the aspirational goal for a tax system in general, or for the U.S.4rules governing international transaction specifically, is the implementation of a tax-neutral set of rules that neither discourage nor encourage particular activity. The tax system should remain in the background, and business, investment and consumption decisions should be made for non-tax reasons. In the international tax context, the concept of tax neutrality has several standards. One standard is capital-export neutrality. A tax system meets the standard of capital-export neutrality if a taxpayer’s choice between investing capital at home or abroad is not affected by taxation. For example, if X Corp., a U.S. corporation, is subject to a 35 percent tax rate in the United States on its worldwide income, and the income from its French branch is also subject to a 30 percent French tax, a U.S. tax system with capital-export neutrality would credit the French tax against the potential U.S. tax liability and tax the French profits in the United States at a 5 percent residual tax rate. X Corp.’s tax rate is 35 percent regardless of the location of the investment. If the investment is located in the United States, taxes are paid to the U.S. treasury; if the investment is located in France, the French treasury would collect as tax 30 percent of the income and the United States would collect as tax 5 percent of the income. With perfect competition, capital-export neutrality results in an efficient allocation of capital. X Corp. will make its investment decision based on business factors rather than tax rates. 5 The second neutrality standard is capital-import neutrality, sometimes referred to as foreign or competitive neutrality. This standard is satisfied when all firms doing business in a market are taxed at the same rate. For example, if the United States exempted X Corp.’s French income from U.S. taxation, there would be capital-import neutrality from a French perspective because X Corp. would be taxed at the same rate as a comparable French corporation doing business in France. Compared with a tax crediting mechanism, this exemption method violates capital-export neutrality. A U.S. taxpayer will pay lower overall taxes if the investment is made in France (30 percent rate) than if the investment is made in the United States (35 percent rate). A third neutrality standard is national neutrality. Under this standard, the total U.S. returns on capital which are shared between the taxpayer and the U.S. Treasury are the same whether the capital is invested in the United States or abroad. That is, if the U.S. tax rate is 35 percent of a taxpayer’s income (with the taxpayer keeping the other 65 percent of the income), the imposition of foreign taxes will not alter that rate. Applying the national neutrality principle to the example above, any taxes paid to France by X Corp. would be deductible and not creditable against U.S. income tax liability; foreign income taxes would be treated in the same manner as any other domestic or international business expense. Notice the effect on the taxpayer is higher overall taxes because the deductibility of6French income tax does not reduce U.S. tax dollar-for-dollar. The U.S. tax system has elements of all three standards of neutrality. The tax credit mechanism, discussed infra in Chapter 8, subject to limitation allows U.S. taxpayers operating abroad to reduce U.S. taxes by an amount equal to any income taxes paid to other countries on foreign income. This provision is driven by notions of capital-export neutrality. However, not all foreign taxes are creditable (e.g., foreign property taxes, value added taxes, capital taxes). To the extent that a U.S. taxpayer incurs foreign taxes that are not creditable, those foreign taxes normally can be deducted for U.S. tax purposes. This treatment and other restrictions on the foreign tax credit mechanism are in keeping with the concept of national neutrality. Finally to the extent that the United States generally exempts (at least while the earnings remain abroad) from U.S. taxation the earnings of foreign subsidiaries of U.S. corporations (so that they can compete against local businesses), the capital-import neutrality principle is advanced. · 1.05 Overview of Worldwide International Tax Systems Virtually every country has tax rules that govern the tax treatment of its residents operating abroad and foreign taxpayers operating in that country. While international taxing systems differ from country to country, there are some basic similarities and understandings. Sometimes these understandings7are set forth in bilateral income tax treaties working in tandem with domestic tax laws; in other cases, it is the domestic tax laws of a country that determine the appropriate tax treatment. In general, a country exercises jurisdiction for legal purposes based on either nationality or territoriality. With respect to taxation, a country may claim that all income earned by a citizen or a company incorporated in that country is subject to taxation because of the legal connection to that country. The United States exercises such jurisdiction over its citizens and companies incorporated in the United States regardless of where income is earned. Business profits earned by a U.S. corporation in Italy are subject to tax in the United States (and normally in Italy as well). Salary earned by a U.S. citizen who is a resident of Switzerland from Swiss employment is subject to tax in the United States (and in Switzerland as well). Basing tax jurisdiction on nationality can be justified by the benefits available to nationals. For example, in a very real sense U.S. citizens have an insurance policy; they can return to the United States whenever they want, and they have the protection of the U.S. government wherever they are abroad. Tax payments contribute to the availability of that “insurance.” U.S. corporations, regardless of their physical presence in the United States, enjoy the benefits of U.S. laws that define corporate relationships. However, the United States is somewhat unusual in relying on citizenship or8mere place of incorporation as a basis for jurisdiction. In addition to nationality, countries often exercise jurisdiction based on territoriality. A territorial connection justifies the exercise of taxing jurisdiction because a taxpayer can be expected to share the costs of running a country which makes possible the production of income, its maintenance and investment, and its use through consumption. The principle of territoriality applies with respect to persons and objects (i.e., income). Country A may claim taxing authority over a citizen of country B if that individual is considered a resident of country A. Similarly, a company incorporated in country B may be subject to tax in country A if there are sufficient connections. For example, many countries (not including the United States) find a sufficient territorial connection if the place of effective management of a corporation is situated within their boundaries. Territorial jurisdiction over a person is analytically similar to jurisdiction based on nationality. In both cases it is the connection of the person to a country that justifies taxing jurisdiction. In the case of nationality, that connection is a legal one (e.g., citizenship or incorporation). In the case of territorial jurisdiction over a person, the connection is factual (e.g., whether that person is actually resident in a particular country). Even if a person is not a citizen or resident of a country, that country may assert territorial tax jurisdiction over income deriving from within the9territory of that country earned by a citizen or resident of another country. This is sometimes referred to as “source” jurisdiction because the source of the income is within a country. For example, a country may impose a tax on business profits of a nonresident earned within that country. Investment income, including dividends, interest, royalties, and rent, may also be subject to tax in the country in which such income arises. Typically, a country does not attempt to tax income with which it has no connection. For example, the United States normally does not tax income earned by a French corporation in France or in Germany. The potential for double taxation occurs when conflicting jurisdictional claims arise. For example, country A may claim the right to tax a person (including a corporation) based on that person’s nationality or residence while country B stakes its claim of taxing authority because income is earned in country B. There is a norm of international taxation which the United States generally follows that cedes the primary taxing authority to the country of territorial connection (i.e., where the income is earned) and the residual taxing authority to the country of nationality or residence. Accordingly, the United States normally credits any income taxes paid in India on income earned in India by a U.S. citizen or resident against the income tax otherwise due in the United States, and only the excess, if any, of U.S. income tax on the foreign income over the foreign tax on such income is collected by the U.S. treasury. Similarly, many countries have10adopted more of a territorial approach to jurisdiction and exempt certain income (e.g., business profits) earned in another country from the tax base, rather than including such income in the tax base and then granting a credit for foreign taxes paid as the United States does. The taxation of income based on territorial jurisdiction generally takes one of two forms. A country typically asserts full jurisdiction over business profits generated within that country by a nonresident (who in the case of the United States is not a US citizen), taxing those profits in the same manner as if they were earned by a resident of that country. Expenses associated with generating such income are normally deductible. Non-business, investment income, such as passive dividends, interest, royalties and rent, typically is subject to limited jurisdiction. Often such income is taxed by a country in which the income arises on a gross basis (i.e., no deductions permitted) at rates ranging from 0 to 30 percent. The lower rates that often apply to such income when compared with business profits reflect, in part, the fact that the territorial connection for a full-blown business within a jurisdiction is often more significant than the territorial connection for an investment where the only connection may be the payer’s residence. Moreover, the lower rate reflects the fact that the tax is on gross income. However, it should also be noted that a low tax rate on gross income may in fact result in a high tax rate on net income. Suppose country A imposes a 3011percent tax on $100 of passive royalty income earned by a resident of country B from a license with a country A licensee. If the country B resident incurs $60 of expenses to produce the $100 of gross income, the effective tax rate in country A is 75 percent (i.e., a $30 tax on $40 of net income). 12 CHAPTER 2 BASIC U.S. JURISDICTIONAL TAX PRINCIPLES § 2.01 Introduction to U.S. Taxing Provisions International transactions can be grouped into two broad categories outbound and inbound transactions. The term “outbound transactions” refers to U.S. residents and citizens doing business and investing abroad. The term “inbound transactions” refers to foreign taxpayers doing business and investing in the United States. § 2.02 Outbound Transactions The taxation of outbound transactions is fairly straightforward. U.S. individual residents and citizens wherever residing are taxed on their worldwide income under the rates specified in I.R.C. § 1. Domestic corporations (i.e., those created or organized in the United States, see I.R.C. § 7701(a)(4)) are also taxed on worldwide income under the rates specified in I.R.C. § 11. U.S. individuals or corporations that are partners in either a U.S. or foreign partnership are also taxable on worldwide income. U.S. taxpayers engaged in activities abroad generally compute taxable income in the same manner as U.S. taxpayers operating solely within the United13States. There are some differences with respect to foreign activities of U.S. taxpayers. For example under I.R.C. § 168(g)(1)(A), there are limits on the method of depreciation available for property used outside the United States. There are some important rules governing the U.S. taxation of foreign activities that are treated in more detail infra. In a domestic context, normally the income of a corporate subsidiary is not imputed to the parent corporation. Instead in the absence of consolidation, the parent corporation is taxed when a dividend is paid by a subsidiary. However, the U.S. parent of a foreign subsidiary is sometimes taxed on the earnings of a subsidiary even if those earnings are not distributed. I.R.C. §§ 951–960. See infra Chapter 10. The purpose of this treatment is to discourage U.S. corporations from redirecting income outside the United States in order to avoid immediate U.S. taxation. In a domestic context, normally U.S. taxpayers are taxed on all income. However, under I.R.C. § 911 (discussed infra at § 7.02), there is an exclusion for certain income earned abroad. For U.S. citizens and residents, including domestic corporations, among the most important international tax provisions are those dealing with the foreign tax credit. I.R.C. §§ 901–909. See infraChapter 8. If a U.S. taxpayer earns income in Germany, that income is taxable in the United States and may be taxable in Germany as well. In order to alleviate this double tax, the United States allows14the taxpayer to offset taxes due in the United States with the income taxes paid in Germany. This foreign tax mechanism is full of twists and turns that are considered in more detail infra. For example, if Germany decides to tax income that the United States considers to be U.S. source income, no credit for German taxes paid is allowed to offset U.S. tax on that income. Also, if the German tax on the income earned in Germany is higher than the U.S. tax on that income, the U.S. taxpayer will not be able to credit the entire German tax against the U.S. tax liability. Essentially, the German tax can be used only to offset the U.S. tax on the German income, not the U.S. tax on U.S. income. Otherwise the United States would cede to Germany the right to collect taxes on U.S. income. Because the United States only provides a foreign tax credit for foreign income taxes imposed on what the United States considers to be foreign source income, the U.S. source rules, describedinfra in Chapter 3 play an important role. U.S. taxpayers generally want to plan to maximize their foreign source income to allow a maximum foreign tax credit and thereby minimize any potential U.S. tax on the income. Whether a U.S. taxpayer earns foreign or U.S. source income, it will be taxable in the United States. But with foreign source income, the amount of U.S. tax may be lowered if foreign tax credits are available. For example, suppose USCO currently earns $100 million of foreign source income from country X,15paying income taxes there of $70 million, and $100 million of U.S. source income. For U.S. tax purposes, USCO declares $200 million of taxable income and faces a potential U.S. tax (assuming a 35% tax rate) of $70 million. However, USCO may be able to take a credit for the foreign taxes paid, but only to the extent of the U.S. tax that would be imposed on the foreign source income. In this example, the credit would be limited to $35 million (i.e., the potential U.S. tax on the foreign source income). In total, USCO would pay $35 million of U.S. tax and $70 million of foreign tax. Now suppose, that USCO were able to change the source of what is now the $100 million of U.S. source income. If USCO can turn that income into foreign source income and not incur any additional foreign tax in doing so, then USCO may be able to use the full $70 million of foreign taxes paid to offset the $70 million potential U.S. tax on the foreign source income. The result would be $0 U.S. tax liability and $70 million of foreign tax. By changing the source, the taxpayer may be able to save $35 million in U.S. tax. § 2.03 Inbound Transactions The taxation of inbound transactions is not as all encompassing as the taxation of outbound transactions. Nonresident aliens and foreign corporations are not subject to U.S. taxation on their worldwide income. While I.R.C. §§ 1 and 11 appear to apply to all taxpayers, I.R.C. §§ 2(d) and 11(d) apply the16rates in a manner set forth in other specified provisions. (a) Individuals For nonresident alien individuals, the basic taxing provisions are found in I.R.C. § 871. Under I.R.C. § 871(b), a nonresident alien individual engaged in a trade or business in the United States is taxed like a U.S. taxpayer under I.R.C. § 1 on taxable income which is effectively connected with the conduct of the trade or business. Broadly stated, nonresident alien individuals are taxed like U.S. taxpayers on most U.S. business income. Section 871(b) contains two important terms of art that are described in more detail infra at §§ 4.02–4.03: “engaged in a trade or business” (hereinafter sometimes referred to as “ETB”), and income “effectively connected” with the conduct of a trade or business within the United States (hereinafter sometimes referred to as “effectively connected income” or “ECI”). For a definition of these terms, see I.R.C. §§ 864(b) (engaged in a trade or business) and 864(c) (effectively connected income). Nonresident alien individuals are also subject to U.S. taxation on some types of recurring investment income. I.R.C. § 871(a) imposes a flat 30 percent tax on amounts received from sources within the United States which are “fixed or determinable annual or periodical gains, profits, and income” (hereinafter sometimes referred to as “FDAP” income). The most important categories of FDAP income are interest, dividends, rents, and royalties.17These types of income generally are subject to a 30 percent tax on the gross amount of the distribution unless the distributions are income effectively connected with the conduct of a U.S. trade or business (e.g., receipt of interest by a bank) in which case the income is subject to taxation as business income on the net amount of income. Although FDAP income includes “salaries, wages, … compensations, remunerations, [and] emoluments,” virtually all income from services performed within the United States results in effectively connected income that is taxed under I.R.C. §§ 871(b) or 882. See I.R.C. § 864(c)(2) and Reg. § 1.864–4(c)(6)(ii). Generally nonresident alien individuals are not taxable on capital gains transactions as such gains are not the recurring type of FDAP income addressed by I.R.C. § 871(a)(1). There are at least three exceptions to this rule. First, capital gains generated by the sale of U.S. real property or the stock of certain U.S. real property holding corporations are treated as effectively connected income under I.R.C. § 897 and are therefore subject to taxation in the same manner as other business income. See infra § 4.06. Second, any capital gains transaction that is effectively connected with the conduct of a trade or business will be taxable under I.R.C. § 871(b) as business income. For example, suppose an Italian resident who is engaged in a paperback publishing business in the United States sells U.S. securities that were purchased with funds generated by the18business and are managed by employees of the business who use the income generated by the securities to meet the current needs of the business. Gain from that sale would probably be taxable in the same manner as other business income. See I.R.C. § 864(c)(2). However, the Regulations take the position that stock of a corporation shall not be treated as an asset held for use in a U.S. trade or business. Reg. § 1.864–4(c)(2)(iii). If the Italian resident sells assets used in the U.S. trade or business at a gain, the gain would probably be § 1231 gain that would be treated as capital gain. That capital gain would be taxable in the United States as income effectively connected with the conduct of the U.S. trade or business. Under the third exception, which will almost never apply, capital gains for nonresident aliens present in the United States 183 days or more during the taxable year may be taxable in the United States. I.R.C. § 871(a)(2). Generally, a person present in the United States for more than 183 days will be a U.S. resident and will not be taxable under § 871(a)(2). See Chapter 4.04[g] for a discussion of when § 871(a)(2) may apply. (b) Corporations The treatment of foreign corporations (i.e., those incorporated abroad) parallels the treatment of nonresident alien individuals. A foreign corporation is taxed under I.R.C. § 11 on its taxable income effectively connected with the conduct of a U.S. trade or business. I.R.C. § 882. That is, a foreign corporation19like a domestic corporation is taxed on business profits from the conduct of a trade or business in the United States. The fixed or determinable annual or periodical gains, profits, and income (i.e., investment income) of a foreign corporation from U.S. sources is subject to a flat 30 percent gross basis tax under I.R.C. § 881 to the extent such income is not effectively connected with the conduct of a U.S. trade or business. There is one other taxing provision affecting foreign corporations that must be considered—the branch profits tax under I.R.C. § 884. See infra § 4.05. Suppose a nonresident alien individual does business in the United States through a U.S. corporation. The corporation is taxed on its earnings under I.R.C. § 11 and the shareholder is subject to the 30 percent tax on any dividend paid in accordance with I.R.C. § 871(a). The two taxes comprise the double tax system that is a mainstay of U.S. corporate taxation in general. Suppose instead that the nonresident alien individual operates the U.S. business through a foreign corporation. The corporation’s business income (the effectively connected income) is still taxable. I.R.C. § 882. Historically, when the foreign corporation distributed a dividend to its foreign shareholders, it was not difficult for the shareholder to avoid the imposition of the 30 percent tax under I.R.C. § 871(a). In order to equalize the overall taxation of distributed corporate earnings regardless of whether the distributing corporation is a U.S. or foreign corporation, Congress enacted a branch profits tax. Under I.R.C. § 884, a20foreign corporation must pay a 30 percent branch profits tax to the extent that its U.S. branch repatriates (or is deemed to repatriate) its earnings from the United States to the home country. The branch profits tax is levied in addition to the tax under I.R.C. § 882 on corporate income. Where the branch profits tax applies, there is no further tax when a foreign corporation makes a dividend distribution to its foreign shareholders. (c) Partnerships A nonresident alien individual or nonresident corporation that is a partner in either a U.S. or foreign partnership is generally taxed as if the partner had earned the income directly. For example, a nonresident alien individual or foreign corporation that is a general or limited partner is considered to be engaged in a trade or business within the United States if the partnership is so engaged. I.R.C. § 875. See also Donroy, Ltd. v. United States, 301 F.2d 200 (9th Cir. 1962). Ordinarily, a partnership is not a taxable entity for U.S. tax purposes. § 2.04 Citizenship and Residency (a) Individuals The United States is unusual among nations in taxing its citizens on their worldwide income regardless of their residence. In Cook v. Tait, 265 U.S. 47 (1924), plaintiff, a citizen of the United States, was a resident of Mexico. The Supreme Court held that U.S. taxation of the taxpayer’s worldwide income violated neither the U.S. Constitution nor international law. The Court justified taxation on21the theory that the benefits of citizenship extend beyond territorial boundaries. For example, the United States seeks to protect its citizens anywhere in the world. Also citizens have the right to return to the United States whenever they want and participate in the economic system. In effect, a citizen of the United States has an insurance policy, and taxes are the cost of maintaining that policy. Every person born or naturalized in the United States and subject to its jurisdiction is a citizen. Reg. § 1.1–1(c). A noncitizen who has filed a declaration of intention of becoming a citizen but who has not yet been granted citizenship by a final order of a naturalization court is an alien. It is usually not difficult to determine whether a taxpayer is or is not a U.S. citizen for U.S. tax purposes. Determining residency can be more troublesome. Whether an individual is taxed on worldwide income under § 1 or essentially on U.S. business and investment income under I.R.C. § 871 often depends on the definition of residency. Prior to 1984, the definition evolved judicially, resulting in uncertainty in many situations. Now I.R.C. § 7701(b) provides a “bright line” test. An individual is considered to be a resident of the United States if the individual meets any one of three tests: lawful admission to the United States (i.e., “green card” test); “substantial presence” in the United States, or; a first year election to be treated as a resident. I.R.C. § 7701(b)(1)(A). An individual becomes a lawful permanent resident of22the United States in accordance with the immigration laws. Once permanent residence is obtained, an individual remains a lawful permanent resident until the status is revoked or abandoned. The heart of I.R.C. § 7701(b) is the “substantial presence” test. An individual meets this test if the individual is present in the United States for at least 31 days during the current year and at least 183 days for the three-year period ending on the last day of the current year using a weighted average. I.R.C. § 7701(b)(3). The weighted average works as follows: days present in the current year are multiplied by 1; days in the immediate preceding year are multiplied by 1/3; days in the next preceding year are multiplied by 1/6 For example, suppose an individual is present in the United States for 120 days in the current year and in each of the two preceding years. The individual does not satisfy the substantial presence test because the weighted average is only 180 days ((120 x 1) + (120 x 1/3) + (120 x 1/6)). If the individual were present in the United States 122 days each year, the individual would exactly meet the 183 day weighted average ((122 x 1) + (122 x 1/3) + (122 x 1/6)) and would be considered a U.S. resident. An individual is present in the United States on any day the individual is physically present at any time during the day (except for commuters from Mexico and Canada). I.R.C. § 7701(b)(7). For purposes of the residency test, individuals do not count days where the individual was unable to leave the23United States because of a medical condition or days where the individual is a foreign government employee, a teacher, a student, or a professional athlete. I.R.C. § 7701(b)(3)(D). Even if an alien satisfies the substantial presence test, the alien is not a resident if the individual is present in the United States on fewer than 183 days during the current year and has a tax home in a foreign country to which the individual has a closer connection than to the United States. I.R.C. § 7701(b)(3)(B). For this purpose, a tax home is considered to be located at a taxpayer’s regular or principal place of business or if the taxpayer has no regular or principal place of business at his regular place of abode. I.R.C. § 911(d)(3); Reg. § 1.911–2(b). A newly-arrived individual in the United States may be unable to satisfy the substantial presence test but may want to be considered a U.S. resident. For example, an individual present in the United States and earning a salary is fully taxable on the amount of salary income whether the individual is or is not a U.S. resident. However, if the individual is a U.S. resident, the overall tax burden may be less because of various personal deduct