1978 Monte-Carlo meeting

Meeting Summary
  • Business and Politics in the CaribbeanGordon Gutteridge
    • The 50’s and 60’s saw a tremendous upsurge of nationalism and black awareness. There was – and is – little violence, but there have been great changes. Most governments became black, but lacked experience.

      Most of the likely major changes in the Caribbean have already happened. The outlook is for gradual improvement. The present generation of Caribbean politicians came to power as heads of trade unions; there was a movement to the left, but although the welfare provisions will remain, private capital is likely to be welcome in the future. There is a great democratic tradition in the Islands, and, though it has imperfections, it remains strong.

      Guyana started the move to the left under Jagan; bauxite industry has been nationalised and is not profitable. Jamaica’s “social experiment” is not successful.

      The picture is different in the smaller islands. Barbados is stable and the economy is growing. Trinidad is oil rich, which gives rise to social and trade imbalances. The French islands appear prosperous and stable, though over dependent on French social security. Curiously, there is little communication between the French islands and the ex-British ones. Haiti, though independent, has close ties with France; wages are extremely low – which has attracted labour – intensive industry; the government is inefficient and corrupt; the Mafia has moved into the tourist industry, which thrives.

      Puerto Rico is a US dependency; it has enjoyed a great upsurge in the economy – which is currently declining amid much political clamour.

      The US Virgin Islands are subsidised by the US Federal government, but are prosperous.

      The BVI has recently become more prosperous; it is growing slowly with a minimum social stress.

      In the Bahamas, an all black government suddenly came to power. There was a period of jingoism, difficulties with work permits and an exodus of expatriates; the Bahamians have made a good recovery and are stable.

      Cayman has a level-headed, stable government. Their banking and financial facilities are good.

      Bermuda has a history of trading; their bureaucracy is small and incorruptible; their per capita income is high; they have a sizeable middle class, both black and white.

      The Netherlands Antilles have many of the Dutch virtues; they are tidy and industrious. St Maartens is the most northerly and most stable of them.

      In general, the Islands are democratic and peaceful, and benefiting from the gradual growth of tourism.

  • CanadaNathan Boidman
    • In 1972 Canada introduced a tax on capital gains: the converse of the revaluation of foreign assets on departure is their revaluation on arrival.

  • Comparative Costs of Offshore StructuresAnthony Murty
    • The figures were set out in the working papers, on which Anthony Murty commented as follows:


      The costs relate to IBC’s only.

      Bahamas B$1 = US$1

      The costs here are high – to some extent reflecting fees payable to government for work permits and other government levies. The $1000 annual fee for companies is not charged on companies at least 60% locally owned. Stamp duties can be high. There is a government levy on exchange of local currency.

      Barbados BD$1 = US$0.50

      There is no tax on IBC trading income, but a sliding scale on investment income.

      Bermuda BD$1 = US$1

      Costs here are also high, and here also they reflect government levies.


      This is a new and growing centre. There is an income tax and government does not depend on company fees etc to the same extent as nil tax territories. Trust company charges are similar to those charged elsewhere.

      Cayman C$1 =US$1.2

      Costs here are rising

      Costa Rica

      The complicated tax structure does not apply to foreign source income.

      Cyprus CY$1 = US$2.63

      Costs here have yet to stabilise, and are likely to rise.

      Gibraltar G£1 = US$1.82

      Non-resident companies may be theoretically feasible, but in practice Exempt Companies are used.

      Guernsey £1 = US$1.28

      Applicants for companies to be registered include two questions directed to eliciting information about UK tax avoidance.

      Hong Kong HK$1 = US$0.20

      Professional fees and trust charges are on the high side, but may be reduced by bargaining. Stamp duties have been reduced since the Working Papers were prepared. Accounting is required for Hong Kong companies: this will cost a minimum of HK$500. Banking costs are high: for this reason Hong Kong is not a place for “back to back” borrowing.

      Isle of Man £1 = US$1.82

      Costs have recently risen, but are still reasonable.

      Jersey £1 = US$1.82

      The enquiries on company information are searching.


      A company can be formed for $1,600 and costs approximately $700 a year to maintain.

      Liechtenstein 1Sw Franc = US$0.50

      Costs here are high.

      Luxembourg 34 B Francs = US$1

      Accounts of companies need to be prepared and published.

      Monaco 4.60 Francs = US$1.

      “Brass Plate” offices are not allowed: space must be rented, which is expensive.

      Nauru A$1 = US$0.88

      Government levies are low, and costs are correspondingly low. Communication is difficult.

      Netherlands Antilles 1.85 NAF = US$1

      It is worth shopping around for lower accounting costs.


      Changing the Articles of Association is often required and adds to the cost of running a Panamanian company.

      Switzerland 1Sw Franc = US$1

      The duty on authorised capital has been raised to 3% since the Working Papers were prepared.

      Turks & Caicos

      Incorporation is simple. Choice of local advisers and agents is limited. Penalties are rarely imposed.

      The UK

      The UK’s incorporation costs and bank charges are low.

      Back to Back Borrowing

      A bank guarantee may be a cheaper way of providing security than a deposit. There are problems in hypothecation in Jersey. Bank charges may be high and may result in the bank benefiting from a “back to back” transaction more than the taxpayer.

  • Continental EuropeMichael Edwardes-Ker (updated 1998)
    • Germany and Austria have provisions similar to those of subpart F in the US: subject to certain conditions and exclusions passive income of companies incorporated abroad is subject to German tax in the hands of the German shareholder.

      Belgium denies deduction for interest, royalties and service fees payable to low tax countries in the absence of adequate commercial justification. Belgium also prevents avoidance by transfer of assets abroad – unless the taxpayer can show that the transfer was for commercial reasons and he has declared no smaller income as a result.

      France has a similar denial of deduction for payment to countries with a “privileged tax regime”. Pop stars and athletes who divert income to tax haven companies may be assessable on such income.

      Germany, Austria and France have provisions nullifying for tax purposes transactions which can be regarded as an “abuse of law”. This has not been very successful in Germany, but it has been more effective in France and has been applied there to schemes for transferring businesses without suffering tax.

      Foreign companies owning residential real estate in France can be subject to tax on 3 times the market rental value of such real estate if an arm’s length rent is not paid.

  • Double Tax AgreementsMichael Edwardes-Ker (updated 1998)
    • The provisions of the OECD model are being followed in new treaties and in revisions of old treaties.

      Article 1: U.S. Revenue Ruling 59/79 was issued on the U.S.-German treaty; it relates to the “saving clause” – which is to be found in all U.S. treaties.

      Article 2: the Model contains only minor changes from the 1963 draft: social security payments are not “income tax”.

      Article 3: this is the definition article. The 1977 Model contains a definition of “international traffic”: liability to tax depends on place of effective management. The definition of nationality has been dropped.

      A German ruling of March 1976 related to a Greek limited company: it provided that Greek law should determine the nature of Greek – source income, but German law was to determine its liability to tax in Germany.

      Article 4 provides definitions of residence. The Fletcher case concerned the Canada/U.K. treaty: the exemption under the treaty was held to override the liability under domestic law. U.S. cases distinguish between foreign companies which are genuine and substantive and those which are not.

      Article 5: energy-related activities are now included among permanent establishments. The commentary has been greatly expanded, particularly in relation to building sites. The U.K. London Produce case turned on the question whether the company was a “bona fide broker or commission agent”. In the U.S. Simenon case, the author’s office in his home – where he wrote his books – was regarded as a “fixed place of business” and hence a permanent establishment. There have been numerous U.S. rulings on this Article.

      Article 6: relates to income from immovable property, which, in France, does not extend to income from furnished lettings abroad. Where an election in the U.S. can be made “in any year” it is to be made year at a time.

      Article 7 relates to the quantum of profits. This has been modified by Article 24. There are conflicting cases and rulings as to whether interest is part of the “industrial or commercial profits” of a bank.

      Article 8 is about shipping and air transport and is of wide application.

      Article 9 concerns associated enterprises. Most cases are in practice settled by negotiation.

      Article 10: portfolio dividends are to suffer a 15% tax, those from direct investment, 5%. A person not domiciled in the U.K. (and taxable therefore on a remittance basis) was held in Australia not to be “subject to tax” for treaty purposes.

      Article 11 provides for a 10% withholding tax on interest, but many treaties provide for a zero rate.

      Article 12: the Model provides for a zero rate on royalties. The definitions have become more elaborate.

      Article 13 concerns capital gains. The new Model makes no great changes.

      Article 14 is about independent personal services. The 1977 Model introduces no great changes.

      Article 15 relates to dependent personal services. The new Model introduces some clarification.

      Article 16: Directors’ fees are taxable in the country from which they are paid. The U.S. has reserved its position on this provision.

      Article 17 is about artists and athletes. The new Model is effective to disregard “loan-out” schemes.

      Article 18: Private pensions are taxable where pensioners are resident.

      Article 19 concerns government officials and state pensions.

      Article 20 concerns scholarships.

      Article 21 relates to “other income” and is the most sophisticated article in the Model

      Article 22 concerns capital.

      Articles 23 & 24 relate to the elimination of double taxation and non-discrimination and are extremely controversial.

      Article 25 concerns mutual agreement procedure.

      Article 26 provides for exchange of information. The 1977 changes are expressed to remove ambiguities; but in fact the scope for tax authorities to obtain information has been very much increased.

      The remaining articles deal with diplomatic agents, territorial extension, entry into force and termination.

  • GermanyWalter Lapann
    • To move into Germany, people who are not from Common Market Countries require a work permit and residence permit. Tax is based on residence or place of abode. The maximum rate is 56%.

      A person who stays for more than 183 days becomes fully taxable in Germany.

      Movement out of Germany gives rise to more difficult problems. A German national who has been fully taxable for 5 out of the previous 10 years and moves to a country whose tax rate is less than 2/3 of the German rate, continues to be taxable.

      Any person who has been fully taxable in Germany for 10 years, has significant assets and becomes a non-resident, is treated as selling his assets when he leaves. But if he declares an intention to returns within 5 years this “departure tax” is not charged.

  • Germany as a Stepping StoneWalter Lappann
    • The “Stepping Stone” is typically a company interposed between a high tax country where the income arises and the low tax country in which it is to be accumulated.

      Germany has 45 tax treaties in effect and another 43 are under negotiation.

      Suppose a Bermudian has a patent which he wants to utilise in the UK: he could licence it to a Netherlands company which could in turn licence it to the UK. A profit must be left behind in the stepping stone.

      A GmbH – a closely held company can easily be formed in Germany, which can function as a stepping stone. Suppose a US patent holder licences the patent to Australia: the withholding tax is 46%. Now suppose he interposes the GmbH: the Australian withholding tax is only 10%. But if the GmbH has been formed only for this purpose and is related to the licensor, it may suffer the penalty of a “constructive dividend” – a tax ranging from 112.5% to 255% – and further penalties also. It is therefore wise to use an unrelated party and do a commercial deal with that company. Normally, there is a 25% withholding tax on royalties, but this is generally reduced under the treaties.

      There is no withholding tax on interest. But it must be at the market rate applicable where the borrower is. The profit of the stepping sone should always be a normal commercial one – which of course it always will be where an unrelated party is the stepping stone. A German stepping stone will be useful for interest flowing from South Africa to the US or from Italy to Canada.

      Royalties may be paid to Germany from Italy, Netherlands, Norway, Austria, Pakistan, Singapore, Sweden, Switzerland, South Africa with withholding tax; they may be paid by a Germany company free of withholding tax to the Netherlands, Switzerland or the US. There is a 5% tax on royalties paid to Luxembourg.

      A German company may receive interest free of tax from Italy, Luxembourg, Morocco, Netherlands, Austria, Sweden, Switzerland and the US.

  • Quasi-Associated EnterprisesMilton Grundy
    • This is a satellite enterprise of an existing business, in which the proprietors of the existing business have some (generally indirect) interest. The satellite enterprise is established outside the territory in which the proprietors live. It may be created for political or similar reasons, but its purpose is usually to avoid currency restrictions and/or tax.

      Such “quasi-associated” enterprise is commonly a trading company owned by a trust. The choice of locality for a trust is wide; there are several possible locations in Europe. Outside Europe there are of course those of the Caribbean and West Indies, as well as such places as Nauru and the New Hebrides. The best place is generally where the practitioner is best connected in this field; as in so many others, it is better to do business with friends than with strangers.

      A trust instrument should be flexible, and should contain power to appoint trustees in other jurisdictions and to transfer trust property to the trustees of other settlements.

      Similar considerations affect the choice of location for the operating company; a company does not have to be managed and controlled in the place in which it is incorporated. For dealing with the public at large, a company incorporated in one of the classic tax havens is generally unsuitable. Bahrain, Costa Rica and Cyprus offer particular favourable facilities. A Costa Rica corporation combines well with a UK trust.

      Where a company in a tax haven is used it may be wise to interpose an honest and solvent “stepping stone” situated in a high-tax country between it and the customers with whom business is done.

  • Tax Advantages of Double Tax Agreements in the CaribbeanMarshall Langer
    • The 1945 UK/US Treaty (as modified in 1946, 1954 and 1957) applies to the BVI. The 1948 Netherlands/US Treaty applies, with modifications, to the Netherlands Antilles.

      A company registered in the BVI is a “BVI corporation” whether resident there or not; a company managed and controlled in the BVI is a resident of the BVI, wherever incorporated. Whether a company which is resident in the BVI merely because a majority of its directors are resident, is also a “resident of the BVI” for the purposes of the US Treaty, is something of an open question.

      US withholding tax on portfolio dividends to a Netherlands Antilles corporation is 15%. If the Antilles corporation is owned by a Netherlands Corporation, it pays 2.4% to 3% Antilles tax; otherwise it pays 15%, which makes a total tax of 27.3/4% though after deduction for interest and expenses, the overall rate may be reduced to about 24% or even lower.

      In the BVI, the situation is similar, but credit is given for the US withholding tax of 15% against the local tax of 15%. However, the BVI licence fee works out at the equivalent of a 2% tax on the income of a typical portfolio.

      Articles VIII and IX of the US/Netherlands Antilles treaty exempt interest and royalties from US tax. Netherlands Antilles tax is payable as mentioned about.

      There is no corresponding interest provision in the BVI Treaty, but Article VIII exempts US – source royalties from US tax if the recipient is subject to BVI tax ie at 15% on net income after deducting expenses and any allowable amortisation.

      Capital gains are not dealt with by the Treaties, but portfolio gains of non-resident aliens are generally free of US tax.

      The US taxes real estate gains of a foreigner except where he:-

      a) purchases raw land and holds it without development; or

      b) purchases and lets under a net lease (though the gross rent is taxable at 30% – which may be more than 100% of the net rent); or

      c) buys and occupies a private home or condominium let only rarely – if at all.

      A foreign investor may elect to be treated as carrying on business – ie to be taxed on the net rent. Such election is irrevocable under US domestic law, but Article X of the Antilles Treaty and IX of the BVI Treaty provides for the election to be annual. If the property is sold in a year for which no election is made, no US tax is payable on the profit.

      Article V of the Netherlands Antilles Treaty exempts the rent from Antilles Tax and Article XII exempts dividends and interest paid by the company from US tax (the interest being nevertheless deductible in arriving at the net rent).

      There is no equivalent in the BVI to Article V of the Netherlands Antilles Treaty. But the use of a non-resident BVI company gives the same effect. Article XV of the BVI Treaty exempts a BVI corporation from US tax on dividends or interest paid by it (the interest being, again, deductible in arriving at the net rent).

      BVI non-resident companies and Netherlands Antilles corporations are therefore very useful vehicles for reinvestment in US real estate.

  • Tax Havens of the CaribbeanMilton Grundy
    • The advantages of Bermuda are, first, its mid-atlantic situation and, second, its expertise in the field of insurance. The major banks and trust corporations are not there, and the leading law firms do not welcome small transactions.

      The offshore business of the Bahamas is on a very large scale. The country suffered something of a political eclipse at the beginning of the decade, but has recovered and now occupies a very important position in the international tax planning world.

      The Turks and Caicos Islands are newcomers to this field. They are acquiring a position as a jurisdiction for company incorporation: they have no exchange control, and since there are few companies registered there, one may expect little difficulty in getting approval for a company name.

      Cayman is smaller than the Bahamas, and everyone – lawyers, bankers and government at all levels – is extremely accessible. They have a history of active participation by government in the promotion of the colony as a tax haven.

      The British Virgin Islands impose an income tax, but they have become popular as a location for non-resident companies and for resident companies which can take advantage of the tax treaty to invest in the US.

      Costa Rica corporations have the advantage of having no tax haven image. They suffer no tax on their income arising outside Costa Rica, though they do have a distribution tax of 15%.

      Panama, by contrast, is well known as a tax haven; it also taxes only local income, but has no distribution tax. The Colon Free Zone, and bank secrecy are also important features of Panama.

  • The Arm’s Length PrincipleTony Friend
    • The US Code s.482 provides for distribution, apportionment or allocation of income between associated enterprises – whether purely domestic or involving foreign enterprises. The IRS have produced extensive guidelines: the comparable price method is to be applied first, the resale price method next, the cost – appropriate. The majority of cases concern the “any other method” principle.

      Very similar provisions exist in France, Belgium and Germany. In the rest of Europe, no specific legislation exists. But in the Netherlands, the proper measure of profits would require a similar adjustment – and indeed a court in any country nowadays would be likely to uphold a computation on similar principles.

      The German authorities purport to follow the US guidelines; the new UK department dealing with transfer pricing is assiduous authorities in Europe and US come down to horse – dealing. It is always useful for the taxpayer to assemble information: one can nearly always find good examples of people making profits smaller than those for which the tax authorities are contending. If the taxpayer’s return on capital is high, the Revenue are unlikely to attack transfer prices. And most Revenue authorities are sympathetic to opening losses. Arm’s length interest charges can be deduced from banking practice; interest rates must always be influenced by the currency of the loan. There are guidelines in the US and Switzerland. The Canadians and US have rule son “thin capitalisation”: this topic is being considered by the EEC Commission; and it is likely to be much discussed in the near future.

      Most countries have guidelines, official or unofficial, as to the size of allowable payments for the use of knowhow, patents, or trademarks. Guarantees of markets, guarantees of product and similar “wallpaper” can effectively influence allowable prices. Scarcity can justify a high price; a competitive situation or “strategic” marketing considerations can justify a low price. It matters very much who pays for the advertising, packaging, or product insurance; who is responsible for servicing; whether the goods are trademarked, and so on.

      In the UK, s.482 may prevent product lines being shifted to foreign companies. The attitude of central banks can be important – in France and the UK it is worthwhile discussing problems with the bank; in Spain it is virtually impossible to get permission to pay management charges on royalties abroad; it can take months to get an application through the Central Currency Committee in Italy.

      Foreign tax credit and – in the UK – ACT must always be considered; similarly, prices may be raised to take up for losses, depreciation allowances and other kinds of “negative income”.

      Extreme care is necessary on transaction pricing in Germany: the penalties are very high.

      Tax saving by transfer pricing may be counterbalanced by custom duties.

      Price control in various countries is another factor to be considered in transfer prices; leasing may be preferred to selling.

      It is unwise to de-centralise head office expenses. Some countries even impose withholding taxes on head office charges.

  • TrustTimothy Jones
    • English trust law is derived from five centuries of case law, from statutes of the 19th centuries and from something which can be called an attitude of mind – an approach to the concept of trusts to be found in Lincoln’s Inn and the Chancery Court.

      The “use” – the predecessor of the trust – was used to avoid a form of tax known as “feudal dues”. The Statute of Uses was an early example of “counter avoidance” – and was largely ineffective.

      An example of a simple, ministerial trust – which confers no discretion on the trustees, is a trust to pay the income of the trust fund for A for life and subject thereto for B. The trustee is the owner of the property vis-a-vis the outside world, but A and B are together the beneficial owners – they not merely have rights in personam against the trustee, they have proprietary rights – rights in the trust property itself. A and B the beneficiaries can dispose of their rights. They can together bring the trust to an end.

      An interest in reversion is calculated to increase in value; a limited interest is similarly calculated to fall in value. These phenomena can have interesting uses in tax planning, particularly as regards gift taxes.

      A trust is extremely flexible. Trustees of a discretionary trust may reside in one country – typically, a low tax country, while the beneficiaries reside in another – typically a high tax country. A trust may resemble other entities – eg one may have a “trading trust” similar to a trading company, but perhaps more favourably taxed.

      If the trust property is not properly vested in the trustees the trust is incomplete – eg by lack of notice to a nominor, or as a result of a transfer of foreign property invalid under the law of its situs. The settlor may, however, constitute himself trustee of the property – and this may be used as a safety device.

      Someone must have the right to enforce the trust against the trustee and against the trust property – this is as a rule vested in the beneficiaries, but a Cayman exempted trust can provide an exemption to this rule. And there must be a court which will recognise this right as, for example, would not be found in the case of “trust” of land situated in Italy.

      A trustee may be a company. The directors have the same duties and liabilities vis-a-vis the beneficiaries ad individual trustees would have. Or the trust property may be all the shares in a company which in turn holds other assets. In such a case the trustee is still responsible for seeing that the trust property does not suffer by any improper act of the company or its directors.

      It must be possible to know at any one moment who all the beneficiaries are. It is not necessary to be able to make a list of all of them, but it must be possible to say of any person whether or not he is a beneficiary.

      A trustee, in order to sell trust property, needs a power to do so, for he has to dispose of something he does not have – viz. the beneficial interest in the property.

      A trustee has an implied power to take steps to protect the trust property; all other powers must be conferred either by the trust instrument or by statue. A power conferred by the instrument can only be exercised in the manner prescribed by the instrument, but a fetter on the exercise of a power must not be arbitrary or capricious. If the exercise of a power is made subject to a person’s consent, it cannot be exercised if that person is dead.

      A power is only exercisable for the purpose for which it was given. A power cannot be exercised otherwise than to benefit the beneficiaries.

      A power to benefit a capriciously – chosen class is invalid: there must be some discernible guide – lines as to the way in which the power is to be exercised.

      A trust creates a system of law which is immutable – except by all the beneficiaries acting together, or by the court or by the statute. Unlike a contract, the parties cannot afterwards change its terms. Powers should generally, therefore, be wide; in case they turn out to be too wide, the trustees should be given power to circumscribe their powers.

      Courts outside England tend to borrow from the practice of the English Court in interpreting trust instruments governed by their laws.

      When using a trust for tax avoidance purposes, it is wise to use a trust which would easily be recognisable as such by the court of the country whose taxes are in question.

      It is unnecessary to prescribe a forum for the trust and may turn out in practice to be too restrictive. A provision for change of the proper law of a trust is invalid and since certainty is always important in trusts used for any tax planning purpose, the mere fact that there is a school of thought that a provision is invalid, is a good reason in such cases for avoiding it. However, a power to transfer trust property to trustees of another settlement is a valid power: this can in effect change the law governing the devolution of the property, and can also be used to “migrate” the trust. For emergency migrating, the Protector or other person should have a power of attorney to deal with the trust assets.

  • United KingdomMilton Grundy
    • The Inland Revenue went through a period recently of giving notices requiring information about overseas transactions under s.481 of the Taxes Act, but it seems that the actual tax collected was small in relation to the effort involved – particularly since they have never pressed any claim to tax by reference to trading profits of an overseas entity, or by reference to income protected by a tax treaty. More recently they appear to have adopted the policy of concentrating their efforts in areas where the tax yield is likely to be greater. There are provisions in this year’s Finance Bill, designed to combat certain well marketed avoidance schemes retrospectively. The “working arrangement” with the US tax authorities is part of a drive to prevent avoidance by transfer pricing: in that area, very large sums are involved. And the Inland Revenue are also having a drive against evasion by individual taxpayers – especially those in business on their own.

      This concern with transfer pricing and evasion in the UK is echoed in the OECD Council recommendations of 21st September 1977, the reply of the EEC Commission to a question raised in the European Parliament (9th December 1977) and the Report of the Council of Europe (16th January 1978).

  • United KingdomMilton Grundy
    • The UK maintains a specially favourable tax regime for individuals who, although resident in the UK are not domiciled there; it behoves them to take all necessary steps to make evident their foreign domicil. Intending residents should consider entering into some transaction (before they take up residence) to bring up to date the base cost of their capital assets – eg by putting them into a company, which is then wound up.

      Residents who leave the UK suffer no”exit” tax, but they should be scrupulous not to overdo visits to the UK, lest they fail to convince the UK Revenue that they have lost their resident status.

  • United StatesMarshall Langer
    • Johanssen, a Swedish prize fighter attempted to become a resident of Switzerland: he purported to fight on behalf of a Swiss corporation. Aiken Industries involved a transfer to a Honduras company (there being then a US/Honduras treaty) the right to US source interest. In both cases the Court rejected the transactions as shams.

      In Perry Bass an oil interest was transferred to a Swiss corporation; this was held effective for tax purposes. The Suez Canal Company’s claim to the benefit of the French/US Treaty was denied; the judgement was partly based on the fact that the company paid no French tax.

      A 1975 Revenue Ruling approved the formation of a Netherlands Antilles corporation by a group of investors resident in a third country.

      Under the Freedom of Information Act, letter rulings sanitised are now disclosed. Some have dealt with situations which involved treaty shopping; ostensibly, the rulings concerned the rate of withholding tax, but each treaty corporation (in the Netherlands and in the Netherlands Antilles) was owned by persons resident outside the treaty country and the IRS took no “shopping” point. In a report to Congress the Secretary of the Treasury appears actually to have approved the practice of residents of non-treaty countries forming corporations entitled to treaty benefits for the purpose of investing in the US.

  • United StatesMarshall Langer
    • An alien who comes to live in the US and acquires a “green card” becomes resident and domiciled in the US. The maximum federal taxes are 50% on earned income, 70% on unearned income, 40 – 50% on capital gains and 70% estate taxes. His capital gains tax is calculated by reference to the original base cost o his assets and not by reference to their value at the time he became a resident.

      Suppose the alien becomes a landed immigrant of Western Canada. He gets a new cost basis for his assets ie their value at the time he becomes resident. There are now no federal estate or succession taxes in Canada; of the provinces only Quebec and Ontario now have succession taxes. He becomes a resident of Canada. If he stays there for 5 years he becomes liable for departure tax. He may make extensive visits to the US: even if he becomes a US resident for US tax purposes, this may not be too serious. But if he is not a landed immigrant, he cannot be held to be domiciled in any US state, and will therefore not be liable to US estate tax or gift tax.

      If the immigrant becomes a citizen, he becomes liable to US taxes in full and if he gives up his citizenship in order to avoid tax he will continue for at least 10 years to be liable to US taxes subject to any contrary provision in the treaty (if any) between the US and his new country of residence.

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