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The 100 year old investment-banking firm of Warburg, Dillon
Read (on Park Ave. N.Y.) (now UBS
Warburg) has offices in 39 foreign
countries - including the Bahamas,
the tiny Cayman Islands, Hong Kong
and the Channel Islands. Makes you
wonder why, doesn't it.
Non-resident foreign companies,
trusts, banks and individuals can
trade stocks, bonds, commodity
contracts and options 100% free from
U.S. capital gains taxes. Under the
U.S. Tax Code, only when a foreign
company, foreign trust or
nonresident alien individual takes
up permanent residence within the
United States, he is subject to U.S.
capital gains taxes in the same way
as domestic taxpayers. For a
corporation permanent residence
would be a U.S. office or warehouse.
Capital gains realized by foreign
corporations and other nonresidents
"not engaged in a trade or business
within the United States" are
exempted from tax under IRC Section
871 and IRC Section 881 & IRC
Section 897(c)(3). Moreover, U.S.
Treasury Regulations Section
864-2(C) (1) & (2) provides an
exception for what embodies being
"engaged in a trade or business
within the United States". Under
U.S. regulations, a nonresident's
Stock Market transactions
carried-out through a U.S. stock
broker, independent agent, or an
employee are not considered to cause
the nonresident to be "engaging in a
trade or business within the United
States.
Publicly traded stock market gains
(from NYSE, NASDAQ or AMEX listed
stocks and bonds) accruing to an
offshore company are free of US
capital gains taxes by the Internal
Revenue Tax Code's statutes, but "US
Shareholders" can have a tax
liability (indirectly) if the
offshore company is a "Controlled
Foreign Corporation (CFC) (i.e.,
"more than 50% of voting and
non-voting stock is owned by US
SHAREHOLDERS). See sections 951 thru
958 of the IRC. See especially
Code-Section 951(b) for the
definition of US SHAREHOLDERS.
American taxpayers that use tax
havens are taking more risks
(generally) than a foreign
non-resident alien (not a US
citizen). Whether an American
citizen taxpayer will have a tax
liability on the offshore company
profits depends on a lot of things
including what kind of income is
produced by the company (i.e.,
Subpart F or non-Subpart F) and how
many shares in the company you own,
and whether the offshore company is
a CFC - as defined in the Internal
Revenue Code in Sections 957 and
section 958.
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