
The Tax Consequences Associated With Making Loans or Advances to a Foreign Corporation
By Anthony Diosdi Once a foreign corporation is established, it must decide how to raise funds. Like domestic corporations, foreign corporations often raise capital through issuing stocks or through borrowing. The investor who acquires stock holds an equity interest in the corporation while the lender holds a debt or creditor interest in the foreign corporation. In either case, the investor or lender expects a return on the investment. Shareholders may receive that return from dividends paid on stock and from profit upon later sale of the share. On the other hand, lenders receive their return on their investment in the form of interest payments. Many U.S. investors do not wish to hold an equity investment in a foreign corporation because of the harsh GILTI or subpart F income tax consequences…