Corporate US Tax Terms Explained – A Quick-Reference Guide

Need help understanding US tax jargon? From PFICs to UBTI to ECI, this glossary breaks down the most common US tax acronyms affecting international funds, investors and corporations. 

CAMT – What is Corporate Alternative Minimum Tax? 

This is a 15% minimum tax imposed on adjusted financial statement income (AFSI) for large corporations with an average annual income of $1 billion (over three years). This tax was introduced under the Inflation Reduction Act of 2022. 

CFC – What is a Controlled Foreign Corporation? 

A non-US corporation in which US shareholders (each owning at least 10% of voting power or value) collectively own more than 50% of the total combined voting power or value. Under the CFC rules, certain types of income – such as Subpart F income and Global Intangible Low-Taxed Income (GILTI) – are subject to current US taxation at the level of the US shareholder, even if the income is not distributed by the foreign corporation. 

CTB – What does Check-the-Box mean?

Certain domestic and foreign entities can choose how they are classified for US tax purposes (e.g., as an opaque entity or a transparent entity). This election, made via Form 8832, can have significant implications on US tax obligations and cross-border structuring. It is often used as a planning tool to improve tax efficiency, simplify reporting, or align entity treatment with broader international tax objectives. 

ECI – What is Effectively Connected Income? 

ECI is income earned by a non-US person that is “effectively connected” to a US trade or business. The IRS defines “effectively connected” as income derived from assets used in, or activities conducted in, a US trade or business. A US trade or business generally exists when activities are considerable, continuous, and physically carried out in the United States, such as providing services, operating a business, or selling goods. ECI is subject to US taxation at tiered rates and triggers a US tax return filing requirement on the non-US person. 

FATCA – What is the Foreign Account Tax Compliance Act? 

A US law designed to prevent tax evasion by US taxpayers holding financial assets outside the US. FATCA requires foreign financial institutions (FFIs) to report information about accounts held by US persons or face withholding on certain US-source payments. Certain entities in the asset management industry are typically considered FFIs. 

FIRPTA – What is the Foreign Investment in Real Property Tax Act? 

A 1980 US law that taxes non-US persons on gains from US real estate sales, essentially converting such gains to ECI. Buyers must typically withhold 15% of the gross sales price. FIRPTA applies to both direct sales of real estate and indirect transfers of interests (e.g., shares in a USRPHC – see below). 

GILTI – What is Global Intangible Low-Taxed Income? 

A category of income that US shareholders of CFCs must include in their gross income annually. GILTI generally represents income earned by non-US subsidiaries that exceeds a 10% return on tangible assets, aiming to discourage shifting profits to low-tax jurisdictions. 

PFIC – What is a Passive Foreign Investment Company? 

 A non-US corporation is considered a PFIC if 75% or more of its gross income for the year is passive (e.g., interest, dividends) or if more than 50% of its assets consist of assets that produce or could produce passive income (e.g. cash).  U.S. investors with a direct or indirect interest in a PFIC face complex tax rules and reporting (via Form 8621) and may be subject to punitive tax treatment, including excess distribution regimes and mark-to-market rules. 

UBTI – What is Unrelated Business Taxable Income? 

Income earned by a tax-exempt entity (such as a charity or retirement fund) from a trade or business that is not substantially related to its main purpose, or from income-generating debt-financed property. This includes gains generated in a fund if the asset was leveraged by third-party debt within a year. UBTI can create tax liabilities and trigger filing obligations for otherwise exempt entities. 

USRPI – What is US Real Property Interest? 

Refers to an interest in real property (including an interest in a mine, well, or other natural deposit) located in the United States or the US Virgin Islands as well as any interest in any domestic corporation unless the taxpayer establishes the US corporation was not a USRPHC (see below). USRPIs are defined under the FIRPTA rules and used in discussions to determine whether withholding and tax return filings are required. 

USRPHC – What is a US Real Property Holding Corporation? 

A domestic or foreign corporation where 50% or more of the fair market value of its assets consists of USRPIs. If a non-US investor sells shares in a US company, it is prudent to confirm non USRPHC status. 

If you have any questions regarding US tax terms or best-practices, please do not hesitate to contact a member of our team. 

Article written by Stacy Martin