Cross-Border Tax Arbitrage: The Good, The Bad and The Ugly

Taxpayers regularly take advantage of opportunities to exploit difference in the tax regimes of two or more countries in order to minimize their overall tax burdens.  They employ cross-border structures designed to achieve multiple deductions for the same expense ("double of triple dipping"), a deduction in one country and an exclusion from income or a foreign tax credit in another country, no income inclusion in another  country, the separation of income from the foreign taxes imposed on that income, and other tax benefits.  These structures often involve hybrid entities or hybrid instruments and take advantage of tax treaty benefits.  The United States and foreign countries have enacted laws to limit or deny some but not all of the tax benefits and amended their tax treaties to address these structures.  The Internal Revenue Service recently proposed foreign tax credit regulations addressing the separation of income and foreign taxes.  These presentations will explore the policy considerations of cross-border tax arbitrage structures and possible legislative and regulatory change.