Double Take: Unpacking the Branch Profits Tax Trap

The Branch Profits Tax (BPT) under I.R.C. Section 884, is a U.S. federal income tax levied on foreign corporations that conduct business through branches located within the United States. Its purpose is to ensure that these foreign corporations face a tax burden similar to that of U.S.-incorporated subsidiaries owned by foreign entities. The tax is assessed at a 30% rate on the "dividend equivalent amount," which typically refers to the profits of a U.S. branch that are not reinvested into branch assets.

Read now »

Related Content

• U.S. Tax Treaties (Limitation on Benefits and Treaty Shopping)
  Review tax treaty provisions to see if an existing provision reduces or even eliminates the branch profits tax. The ameliorative provisions apply only if there is no treaty shopping as defined by the I.R.C.

• Check-the-Box Rules for Foreign Businesses
  Learn how the check-the-box rules apply to foreign businesses. To alleviate some of the U.S. federal income tax and reporting obligations, taxpayers will often look to the entity classification election regime under the so-called Check-the-box (CTB) regulations found in Treas. Reg. § 301.7701-1 through -3 (CTB rules). Practitioners can use these rules as a shield or a sword to alter the manner in which U.S. federal income tax laws apply to foreign businesses, by changing the U.S. federal income tax status of an entity.

• Check-the-Box Rules: Overview
  Discover more about the CTB rules. This practice note discusses key questions under the CTB rules, such as whether an entity exists for U.S. federal income tax purposes; whether the organization is a business entity or a trust; whether an entity is eligible; and, if the entity is eligible under the CTB, what the default classification is. This practice note also reviews certain procedures with respect to initial and late filings and conclude with a discussion of U.S. planning considerations for CTB elections.

Practical Guidance Updates 
Featuring the latest updates from your Practical Guidance account.    

• Tax Key Legal Developments Tracker (Federal) (Current)—keep up to date with key legal developments!
  • Federal Tax Legislation. President Trump signs the One Big Beautiful Bill Act (OBBBA), HR 1, Pub. L. No. 119-21, on July 4, 2025. Federal Tax Legislation Tracker (2025).
  • Business Entities. IRS provides various prescribed rates for federal income tax purposes for July 2025 (the current month).  Rul. 2025-13.
  • Tax Practice, Procedure, and Controversy. The Trump Administration issued an executive order, Ending Market Distorting Subsidies for Unreliable, Foreign‑Controlled Energy Sources, which calls for the Secretary of the Treasury to take necessary and appropriate action within 45 days of July 4 (OBBBA’s enactment date), which is August 18,  to strictly enforce the termination of the clean electricity production and investment tax credits under I.R.C. sections 45Y and 48E for wind and solar facilities to ensure that policies concerning the “beginning of construction” are not circumvented, including by preventing the artificial acceleration or manipulation of eligibility and restricting the use of broad safe harbors unless a substantial portion of a subject facility has been built.
  • Tax Practice, Procedure, and Controversy. IRS extends for an additional year the transitional relief provided in R.S. Notice 2024-56, providing transitional relief from penalties with respect to certain information reporting obligations under I.R.C. Section 60451 and also transitional relief from the liability for the payment of backup withholding tax required to be withheld under I.R.C. Section 3406and its accompanying regulations as well as from penalties for brokers who fail to pay that tax with respect to certain sales of digital assets required to be reported under I.R.C. Section 6045. I.R.S. Notice 2025-33. 
• Document alerts allow you to stay current on legal developments that affect your practice. Find out how to set up your document alerts.
• Keep current on Trump administration developments by referencing the Presidential Executive Actions Tracker, Legal Challenges to 2025 Presidential Executive Orders and Actions Tracker, Executive Orders, EEOC Letters, and Other Actions Concerning Law Firms Tracker, and Trump Transition Resource Kit.
• New! Practical Guidance Journal, 2025 Second Edition features guidance for regulating AI in the workplace in 2025, Intellectual Property issues related to deepfakes, the emergence of AI in mergers and acquisitions, and a checklist to help when evaluating AI technology risks.
• What’s New in Practical Guidance    
  Discover the newest Practical Guidance content and resources in  this update. This guide is designed to help you find the tools and insights you need to work more efficiently and effectively. 
• Browse the Practical Guidance Author Center to see the 2600+ leading attorney authors contributing to our 26 practice areas. Interested in becoming a Practical Guidance author? Click here for details. Practical Guidance is committed to amplifying diverse voices of attorneys across all differences, including gender and race. 
• Legal Developments provide the latest updates and analyses of emerging topics impacting your practice area. Visit the Legal Developments page to see the latest topics, which also include breaking legal news and related Practical Guidance content. 

• New and Recently Updated Practical Guidance Content
  • Private Activity Bonds and Exempt Facility Bond Qualifications: R.C. Section 142
  • Purchases and Sales of Disregarded Entities: Tax Considerations
  • Tax Credit Transfer Agreements: Common Negotiating Points
  • Tax Provision Negotiation in a Stock Purchase Agreement (C Corporation Target)
  • Type A Reorganizations
  • Multistate Corporate Audit Issues State Law Survey
  • Corporate Franchise Taxes State Law Survey
  • Telecommunications Taxes State Law Survey
  • Senior Citizen Tax Benefits State Law Survey
  • How Energy Cos. Can Prepare For Potential Tax Credit Cuts
  • Client Alert Digest: Key Legal Insights on the One Big Beautiful Bill Act (H.R. 1)
  • Trump Threatens Extra 10% Tariff On BRICS-Aligned Nations

PRACTICAL GUIDANCE CUSTOMER EMAIL EDITION ON THE WEB

Experience results today with practical guidance, legal research, and data-driven insights—all in one place.

Experience Lexis+