Tax Tip

by | Jun 13, 2003 | Archives

If you are considering investing in or having an overseas business here is a tip from tax attorney Carlos Kepke that is of considerable interest as it deals with reducing U.S. income tax.

"There are few international vehicles left that can help defer U.S. tax, 

but a perfected foreign trusts in certain circumstances can.

"Let me first explain that a perfected trust is one in which has a foreign

relative as a grantor (the person who formed the trust) or a U.S. citizen

or resident who has died. Under U.S. tax law non U.S. grantors of non U.S.

trusts never have a U.S. tax liability. However if a U.S. person grants a

foreign trust, they remain responsible for income earned by that trust as

long as they live. The beneficiary is not responsible for tax on the

income. Thus when the grantor passes, so to does U.S. tax liability. Once

this trust is perfect it essentially is free from U.S. tax.

"Such perfected foreign trusts can, in some instances, be used to help

reduce United States ("U.S.") income tax of a U.S. corporation.

"An example of this could take the form of a U.S. corporation contracting

with a foreign corporation ("F.C.") owned by a perfected foreign trust for

the F.C. to undertake a feasibility study concerning the business

activities of the U.S. corporation (e.g., a study as to the feasibility of

the U.S. corporation opening new markets outside of the U.S.). The U.S.

corporation would pay F.C. handsomely but fairly for the study and take a

U.S. income tax deduction for such payment. F.C. would receive the

payment and pay no tax on it. F.C. could subcontract out the performance of

the study at a price ensuring a healthy profit for F. C..

"The keys to this Tax Tip are:

#1: The feasibility study must actually be performed.

#2: The perfected foreign trust that owns F.C.must in law be deemed

unrelated byownership to the ownership of the U.S.corporation. [This can

usually be accomplished by being sure that the foreigntrust is perfected.]"

This tip is very general in nature and if you feel that it applies to you, you should consult your legal consul or contact Carlos Kepke at

Until next message may all your investing be good!