Antideferral Rules Hamper Use of Offshore Corporations

63 Practical Tax Strategies 68 (Aug. 1999)

15 Pages Posted: 18 Jul 2019

See all articles by Monica Gianni

Monica Gianni

California State University Northridge

Date Written: August 1, 1999

Abstract

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

Gianni, Monica, Antideferral Rules Hamper Use of Offshore Corporations (August 1, 1999). 63 Practical Tax Strategies 68 (Aug. 1999), Available at SSRN: https://ssrn.com/abstract=3421425

Monica Gianni (Contact Author)

California State University Northridge ( email )

David Nazarian College of Business and Economics
18111 Nordhoff
Northridge, CA 91330-8372
United States
8186772449 (Phone)

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