Vanderbilt Law Review

First Page



The provisions of the Internal Revenue Code which are of particular relevance to the planning of foreign operations are few in number and are generally deceptively simple in phraseology. The substantive provisions consist of those sections which specify rules for determining the source of income, for calculating the credit for foreign taxes paid in respect of foreign source income, and for allowance of concessional treatment accorded Western Hemisphere Trade Corporations, United States Possessions Corporations, and China Trade Act Corporations. Measures designed to prevent tax avoidance which are of particular relevance are those which relate to acquisition of corporate control for the purpose of receiving certain deductions, credits or allowances, to collapsible corporations, to participation of a foreign corporation in certain "tax free" exchanges, to reallocation of income and deductions between related corporations, to foreign personal holding companies, and to the special excise tax on the transfer of stock or securities to a foreign corporation, trust or partnership.' Despite the apparent simplicity of the statutory pattern, tax planning of foreign operations requires intensive application of both ingenuity and intuition. As to many of the technical problems the statutes are ambiguous, obscure or silent. In most situations effective planning requires painful accommodation of practical business needs to the vagaries of a legal framework which is ill-suited to the realities of modern international trade.