Quote from propseeker:
The way I understand double taxation treaties in the US, is that US citizens are allowed to use foreign income tax as a tax credit like a standard deduction to the amount of the tax, but not as a one cancels all. Please correct me if I'm wrong. Also, I didn't see the US listed on the Seychelles list of current treaty holders.
Besides that though, I'm not sure if you were saying the trustee route would be used for the CSL, or if you were speaking in general about trustee's (foreign or domestic). In either case, if you were the primariy shareholder and trustee, I'm not sure how that would work. Regardless of that fact though, how would the CSL get around the requirement to report a CFC?
The first links you provided to fincen.gov only show that transactions will potentially not be flagged, but not absolving a taxpayer's requirment to report international controlled holdings.
Trust me, I'd be very interested in knowing how to do this legally, so not bashing here. As of yet though, I don't see a way to structure these types of setups without hitting a snag somewhere. The only legal exception being manager of a non-CFC non-US hedge fund where management/performance fees are deferred. Would love to learn more though if there are other options...
These types of structures are not typically setup to individuals directly but to business entities and trust entities with their own EIN.
In the US... trustee and corporate directors, controlling shareholders are held to fiduciary duties. Under Uniform Trust and Trustees Act, Liquidating Trusts and Trustees are expressly exempt... These ficticous entities are actually provided more favorable tax treatment than real people.
Take Seychelles out of the equation for a second and consider this a Japanese company such as Mitsubishi or a joint venture with an Indian or Chinese company... any "legitimate" foreign business that is domiciled abroad registered to conduct business in the US. Operating costs and expenses in the US are deducted in the US and vice versa. Intra company transactions typically are free of transfer taxes, duties etc. tax codes allow for customary expenses and repatriating of profits. You must operate and conform with the laws of the regions where you are doing business... Sales tax, business insurance, payroll etc.
Seychelles in particular boomed in the late 90's early 2K specifically because it enacted very progressive laws for internet based business. The US had little case law and were relying on commerce laws from the 30's. Online transactions were a legal mystery... and a crap shoot in court. ie. VOIP violated telecom tax laws only in MN.
If you recall their was a period of time online gambling / porn / cigarettes and pharmacy ops were openly transacted online. Seychelles was the #1 location to setup these businesses.
DOJ / Feds / FinCENS etc.. got really tough. under the patriot act and basically extorted information exchange from everyone.. your swiss banker sold you out.. your caymen banker sold you out...
IRS declared the tax free off shore corps as shams... If you don't pay taxes here or there... Developed some set of tests they use for enforcement.
CSL's were developed as a tax paying entity. My knowledge is limited to Tech operations and not trading. I am aware that foreign IB's are largely unregulated as long as they are not seeking investments or funds from individual US citizens.
US Business investments to foreign business are opportunity ventures and treated much different.
No matter what you do if you are on the radar you will be scrutinized and challenged... Jurisdiction to your favor.
Seek a written legal opinion... You can rely on such advise and move forward with your trading venture. In the event it is deemed to be a sham... You have someone to sue. CYA and keep a low profile and make sure to stay off the radar.
