Breaking Open Offshore Piggybanks: Deferral and the Utility of Amnesty

52 Pages Posted: 13 Sep 2006


Most U.S. multinationals avoid current U.S. taxation of their foreign business income by accumulating such income in controlled foreign subsidiaries; in essence, their offshore piggybanks. It is estimated that nearly $650 billion in foreign earnings is held offshore by foreign subsidiaries of U.S. corporations and out of reach of U.S. taxation. This represents $68 billion in lost tax revenue between 2007 and 2011.

Deferral could be quite simply addressed by requiring immediate taxation of all foreign business income. But completely eliminating deferral has never been a politically feasible option. The American Jobs Creation Act of 2004 took a different approach to the problem. The Act contained a provision that gave U.S. corporations a one-year window during which to repatriate earnings from their foreign subsidiaries at a fraction of normal tax rates. The provision, new Code section 965, was intended to encourage U.S. multinationals to voluntarily end their deferral of taxation on foreign business income. Certain characteristics of section 965 make it remarkably similar to another well-known tax collection device, the tax amnesty, that typically offers a temporary reprieve from some sanction associated with tax evasion in order to encourage persons who have evaded taxes to come forward voluntarily and pay what they owe.

This Article explores the underlying structure of corporate and tax law that permits deferral, assesses the cost of the deferral problem, and reviews the development of current limitations on deferral. The article then surveys the substantial literature on tax amnesties to develop a theory of the optimal tax amnesty against which to evaluate section 965. The article concludes that, on balance, a provision like section 965 is not likely to be effective in ending deferral.

Keywords: tax amnesty, Section 965, deferral, anti-deferral, Subpart F, passive foreign investment companies, amnesty theory, international tax

JEL Classification: K33, K34, D21, E62

Suggested Citation

Boise, Craig M., Breaking Open Offshore Piggybanks: Deferral and the Utility of Amnesty. George Mason Law Review, 2007, Available at SSRN:

Craig M. Boise (Contact Author)


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United States

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