A Closer Look at International Tax Arbitrage and the Dual Consolidated Loss Rules
By Anthony Diosdi International or cross-border tax arbitrage is the name, frequently given to arrangements designed to produce tax savings through exploitation of differences between the U.S. and foreign tax rules on such matters as determining the source of income and deductions, classification of entities and determining the residence of entities for tax purposes. In the context of direct investment abroad there are many opportunities for such arbitrage. Some of the more significant of these lie in the use of hybrid entities (and particularly hybrid branches), which is facilitated by the check-the-box regulations. A simple illustration of how cross-border arbitration has taken place in the past can be illustrated as follows: suppose a U.S. corporation owns a smaller than ten percent interest in the voting equity of a foreign joint…