Antideferral Rules Hamper Use of Offshore Corporations
63 Practical Tax Strategies 68 (Aug. 1999)
15 Pages Posted: 18 Jul 2019
Date Written: August 1, 1999
The misconception that U.S. taxes can be avoided by using offshore corporations derives from an understanding of only the general principles of U.S. income taxation. U.S. persons are taxed on their worldwide income, regardless of where they earn income or where they live. Non-U.S. persons, such as offshore corporations, are generally taxed only on their income from U.S. sources. The logical conclusion from these general principles is that all that is needed to avoid U.S. income tax is to have an offshore corporation earn income instead of the U.S. taxpayer. Of course, when the corporation actually distributes income to its U.S. shareholder, the shareholder will be subject to U.S. income tax. The most that a U.S. person can thus hope to achieve by using an offshore corporation is to defer the recognition of income by keeping the income outside of the U.S. This article discusses the six antideferral regimes in effect in 1999: foreign personal holding companies, income of controlled foreign corporations, foreign investment companies, passive foreign investment companies, personal holding companies, and the accumulated earnings tax.
Keywords: Antideferral, Subpart F, PFIC, CFC
JEL Classification: K34
Suggested Citation: Suggested Citation