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From Roger Hanson and Ronan Guilfoyle from dms Management Ltd (Cayman Island): Following the decision by New York Bankruptcy Judge Burton Lifland that the two failed Bear Stearns’ hedge funds could not avail themselves of Chapter 15 of the United States Bankruptcy Code, perhaps it is time for offshore hedge funds to return to the old principles of the Ten Commandments.
The Ten Commandments, or Income Tax Regulations section 1.864-2(c)(2)(iii) as they were more formally called, were the rules that determined whether or not certain foreign corporations and partnerships trading in stocks or securities, were engaged in a U.S. trade or business. The objective for the foreign (offshore) entity was to establish that its principal office was located outside the United States. The relevant regulation very helpfully set out the activities, the majority of which should be performed outside the United States, if the offshore entity did not want to be considered as having its principal office within that jurisdiction and thereby subject itself to U.S. taxation.
The activities listed by the U.S. Treasury were:
All communication with shareholders, including provision of monthly statements of accounts, investment reports, annual financial statements and all other reports, financial or otherwise;
Communicating with the general public;
Soliciting sales of shares of or subscriptions into the fund;
Accepting and processing subscriptions from shareh......................To view our full article Click here
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