QUESTION: Have just purchased your Controlled Foreign Corporation Tax
Guide and am wondering whether, in your mind, fees and commissions for
raising capital would be included in the category of "banking,
financing or similar business income earned by an eligible CFC or
qualified business unit (QBU) in the home country of the foreign CFC
or QBU (page 37)" that is not subpart F income.

REPLY: Fees for services and commissions are generally subject to tax
in the country where the services are performed. Where the services
are provided by a CFC, they will usually be treated as trade or
business income and will not be subject to current tax as subpart F
income. However, I can think of three possible exceptions that depend
on the specific facts and circumstances of the transactions.

First, if the fees are for services performed within the U.S. (or its
territories), the income will most likely be treated as U.S. source
income by the IRS and will be subject to U.S. tax the same as if the
work were done by an owner/employee of a domestic corporation.

Second, if the work is provided by an owner/employee who is named in
the service agreement, the income is likely to be treated as personal
service income by the IRS and would be included as subpart F income --
meaning it would be taxable to the U.S. shareholders.

Third, if the work is done for or on behalf of a U.S. related person
or entity, it might be treated by the IRS as "related party services
income" which is also included as subpart F income.

The category for banking, financing or similar business income
generally applies to interest, rents and similar types of income that
would otherwise be treated as passive investment income and thereby
subject to the subpart F tax inclusion rules.

These comments are not intended to represent a "covered" opinion and
therefore can't be relied upon as reasonable grounds to avoid certain
types of potential penalties as explained at
http://www.offshorepress.com/vkjcpa/disclosurerules.htm

Vern