How are taxes related to franchise fees presented in Embassy Suites By Hilton's statements?
Embassy_Suites_By_Hilton Franchise · 2025 FDDAnswer from 2025 FDD Document
Certain U.S. territories require the taxation of payments made for franchise licensing and certain other fees to foreign domiciled entities, which includes those in the U.S. The taxation rates for these payments vary by jurisdiction and in some cases may be exempt from any withholding taxes based on cross-jurisdictional tax relief agreements. In circumstances where we are subject to a tax on payments made for franchise licensing and certain other fees, the franchisee is responsible for the withholding and remittance of these foreign taxes to the local taxing authority. Taxes related to franchise fees are presented as foreign tax expense in our statements of comprehensive income and member's equity. Taxes that have been withheld that have not been remitted to the local taxing authority are presented as other current liabilities in our balance sheets.
No provision is made in our accounts for U.S. income taxes because for U.S. income tax purposes, we are treated as a disregarded entity and all items of taxable income and expense are included in the computation of taxable income of Hilton. The results of operations reflected in the accompanying statements of comprehensive income and member's equity may differ from amounts reported in Hilton's federal income tax returns because of differences in accounting policies adopted for financial and tax reporting purposes.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 97)
What This Means (2025 FDD)
According to the 2025 FDD, Embassy Suites By Hilton addresses the handling of taxes related to franchise fees in its financial statements. Certain U.S. territories mandate taxes on payments for franchise licensing and other fees remitted to foreign entities, including those within the U.S. The specific tax rates vary by jurisdiction, and some payments may be exempt due to cross-jurisdictional tax relief agreements.
When Embassy Suites By Hilton is subject to such taxes, the franchisee is responsible for withholding and remitting these foreign taxes to the appropriate local taxing authority. In Embassy Suites By Hilton's financial statements, these taxes related to franchise fees are categorized as foreign tax expenses within the statements of comprehensive income and member's equity. Any withheld taxes that have not yet been remitted to the local tax authority are recorded as other current liabilities on the balance sheets.
For U.S. income tax purposes, Embassy Suites By Hilton is treated as a disregarded entity, meaning that all taxable income and expenses are included in Hilton's overall taxable income. Consequently, Embassy Suites By Hilton does not make provisions for U.S. income taxes in its accounts. It's important to note that the operational results reflected in Embassy Suites By Hilton's statements may differ from those reported in Hilton's federal income tax returns due to differences in accounting policies adopted for financial and tax reporting.