Cross-Border Financing and the Importance of the Registration Rules
By Anthony Diosdi Foreign investors often invest in the United States through financing. Foreign investors often utilize the portfolio interest exception to avoid the 30-percent flat tax on interest income. Planning for the portfolio interest exception is relatively simple, even if the investor is not from a treaty country. From the U.S. perspective, a foreign investor typically utilizes an offshore holding company in virtually all cases (except in cases where the foreign investor’s home country has meaningful restrictions on such holdings) and the foreign investor utilizes a “portfolio debt instrument to reduce or eliminate the 30-percent tax on interest income. By way of background, in 1984, Congress repealed the 30 percent withholding tax imposed by Internal Revenue Code Section 871 and 881 with respect to certain interest paid on…