What is an International Boycott Report?
U.S. companies and their oversea affiliates are prohibited from certain interactions with countries that are listed as boycotted. In some cases, the United States Government may sanction a request. An understanding of the potential tax implications of these dealings is beneficial for any business operating in qualifying countries.
What exactly is a qualifying boycott activity? This type of activity includes agreeing to contracts conditions that may include refraining from doing business in or hiring individuals from certain countries.
What happens if a business operates in a boycotting country? That business must report the operations and could be subject to penalties. As noted in a publication by the Internal Revenue Service (IRS), these operations may result in a number of penalties including the reduction of a foreign tax credit and removal of the ability to take part in a “deferral available to U.S. shareholders of controlled foreign operations.”
Which countries are considered “boycotting countries” for tax purposes? The Secretary of Treasury provides a list of countries that operate in this manner. The list often includes Kuwait, Lebanon, Saudi Arabia, United Arab Emirates and the Republic of Yemen. The boycott includes any business activities, such as selling and purchasing goods, but also extends to include the use of bank accounts and other activities.
What kinds of tax forms are needed? The IRS further clarifies that a federal tax form is required for those who have operations in or related to a boycotting country. Shareholders in foreign corporations or partnerships with operations in these areas may need to file this federal form.
When are these forms due? Filing is generally required at the same time as one’s income tax return. Just like with income taxes, extensions are available.
Do I need a lawyer? It is wise to seek legal counsel if you believe that you may need to file a federal form for these types of business interactions. As noted above, penalties for a failure to comply can be severe. In addition to the noted penalties, additional penalties can include a $25,000 fine and up to one year in jail. An attorney can review your situation and discuss your options for coming into compliance.
