Use may be made of an offshore holding company which would fund the operation of subsidiaries in various countries so that the subsidiaries obtain the benefit of tax deductions on interest paid. If the holding company is situated in an offshore area where there are no income or corporation taxes and no requirement that dividends must be paid, then the profits which are accumulated in the tax free climate can be used to fund the requirement of subsidiaries or reinvested as business convenience suggests.
Tax Planning Consequences
It is important to note that you cannot simply open up an offshore trading company and “pretend” to make money offshore. Any income through investment would have to be actually “sourced” outside of the United States (either through the IRS tax sourcing rules, or various tax treaties) to receive tax beneficial treatment. In addition you must make sure that your structure does not run afoul of the IRS Controlled Foreign Corporation Laws and that your structure is not deemed to be a Foreign Personal Holding Company.