Diverting Income To A
Foreign Corp
By Vernon K. Jacobs, CPA 
& J. Richard Duke, J.D., LLM		 Offshore Tax Strategiesindex.htm

 
Tax Myth: Diverting Profits To A Foreign Corporation

If you assume that someone has managed somehow to create a foreign corporation that is not a controlled foreign corporation, foreign personal holding company or passive foreign investment company, it might seem like an attractive opportunity to divert some profits from a U.S. business into a foreign business where those profits would be tax free.

Diverting profits to a foreign corporation/IBC seems to be one of the more popular schemes being promoted by various hustlers who aren't really familiar with the U.S. tax laws. This theory seems to be based on an ignorance of the IRC 482 rules on the allocation of income between related parties.

The big multi-national corporations and a lot of smaller international companies have been trying to find ways to shift taxable income from high tax countries to low tax countries for many decades.  As their tax lawyers and accountants devise various schemes to do that, which are legal at the time, the lawmakers respond with refinements in the law to prevent this type of tax avoidance.

The IRS and the tax agencies of many high tax countries now have a complex system of laws that permit their tax agencies to re-allocate the profits of multi-national enterprises back to the country where the profits were actually earned. These rules are highly complex and require extensive study to have any hope of being able to circumvent them.
 


The preceding comments are a very brief and non-technical summary of the key tax rules that apply to a person who is a citizen of another country and is not a permanent resident of the U.S.  Vernon Jacobs and Richard Duke are co-authors of  Offshore Tax Strategies.
  About the authors:

Vernon Jacobs is a CPA who provides tax accounting and consulting services for clients with international interests.   J. Richard Duke, JD, LLM is an attorney who specializes in international tax law and is an Adjunct Professor of international tax law.

Sponsored by Offshore Press, Inc.., Copyright, 2006, all rights reserved. Offshore Press, Inc., Box 8194, Prairie Village, KS 66208. Phone (913) 362-9667. Email to Offshore Press  Vernon K. Jacobs, Webauthor