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Loans by Offshore Entities to United States Borrowers May Constitute Effectively Connected Income by Joseph G. Howe
Arnold & Porter LLP - Washington Office
Cynthia D. Mann
Arnold & Porter LLP - New York Office
Maja M. Arcyz
Arnold & Porter LLP - New York Office
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October 8, 2009
Previously published on October 2009
On September 22, 2009, the Internal Revenue Service (IRS) issued guidance that may significantly impact the US federal tax treatment of offshore hedge funds and other non-US entities that are deemed to make loans to US borrowers. Such foreign entities generally have taken the position that their activities are not subject to US federal taxation because those activities are limited to trading or investing for their own account, and so fall within the scope of the trading safe harbor exception to US federal taxation provided for by the US Internal Revenue Code of 1986, as amended, and the regulations thereunder. While IRS has previously resisted issuing guidance in this area, its recent pronouncement suggests that IRS is looking to give greater scrutiny to the US federal taxation of such activities. www.arnoldporter.com
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