If your business has branches in more than one country, are you eligible for the Employee Retention Tax Credit (ERTC)? The answer depends. Only subsidiaries in the U.S. are potentially eligible, and you must ensure that they meet specific criteria to qualify.
Here’s what you need to know about the ERTC for multinational companies.
Does Your Business Have a U.S.-Based Subsidiary?
As a U.S. federal tax credit, the ERTC is only available to U.S.-based businesses. But if your multinational company has a U.S. subsidiary, that subsidiary may be eligible for the credit.
Does your multinational company have one or more branches or subsidiaries within the U.S.? Count those branches when calculating your qualified wages and number of employees for the ERTC.
Challenges When Determining Eligibility for U.S.-Based Subsidiaries
When calculating the ERTC for multinational companies, consider these criteria:
Aggregation Rules
The ERTC uses aggregation rules to help multi-site businesses calculate eligible wages. This rule distinguishes “controlled groups,” which are multiple entities that operate as a single employer for ERTC purposes.
If your company has several locations within the U.S., consider whether those subsidiaries meet these criteria for controlled groups:
- Parent-subsidiary controlled group: Businesses in which a single parent company owns more than 50% of the value or voting power of the business
- Brother-sister controlled group: Businesses in which five or fewer individuals, trusts, or estates own more than 50% of the stock value and combined voting power of the business
- Combined group: Businesses that blend the qualities of a parent-subsidiary and brother-sister controlled group
The international entities that are part of your company would be excluded from these aggregation rules. Only consider the U.S.-based subsidiaries when determining whether to count your business as a controlled group.
Significant Decline in Gross Receipts
The ERTC is available to employers who experienced a “significant decline in gross receipts” in 2020 or 2021 compared to the same quarter in 2019. The definition of a “significant decline” is slightly different depending on what tax year you’re looking at.
- In 2020, a significant decline is a reduction by at least 50%.
- In 2021, a significant decline is a decline by at least 20%.
“Gross receipts” refer to the total amounts of sales and other income your business secured from all sources within your annual accounting period. For ERTC purposes, that accounting period would be a calendar quarter.
Small vs. Large Businesses
You must also determine whether the U.S.-based subsidiary or controlled group that is claiming the ERTC is a small or large business under ERTC rules. Small businesses can claim all of their employee wages, while large businesses can only claim the wages they paid to employees who were not working due to pandemic restrictions or shutdowns.
The definitions vary depending on the year you are claiming the ERTC for, 2020 or 2021. But you will examine the number of employees your business had in 2019 for both filing years. A small business had 100 or fewer employees (2020) or 500 or fewer employees (2021), while a large business exceeded these figures.
Again, you’re only looking at the employees in the U.S.-based subsidiaries for your multinational company.
Consult a Tax Attorney Today
Because the ERTC has many complicated rules and eligibility criteria, it doesn’t hurt to ask for a second opinion about your qualifications for this credit. The tax attorneys at Dayes Law Firm would be happy to provide a free consultation in which we evaluate your business type and determine whether you may be eligible for the Employee Retention Tax Credit (ERTC).
Need help navigating the ERTC for multinational companies? Call us today at (800) 503-2000 to talk with a tax attorney.