Thursday, February 25, 2010
Andrew R. Walker (Milbank, New York) presents The Submerged Logic of 'Doing Business' and Attribution: Diving Below the Surface of the Offshore Lending 'GLAM' at NYU today as part of its Colloquium Series on Tax Policy and Public Finance. The co-convenors of the colloquium are Daniel Shaviro (NYU) & Mihir Desai (Harvard Business School). Here is part of the Introduction:
In a recent, widely publicized general legal advice memorandum [Chief Couns. Mem. 2009-010 (Sept. 22, 2009)] (the “GLAM”), the IRS raised questions about the standards that determine when a foreign person is engaged in the conduct of a trade or business within the U.S. under § 864 based on the attribution to the foreign person of activities conducted in the U.S. by agents or contractors. The GLAM focuses specifically on whether an active lending business is conducted by a foreign corporation in the U.S. if loan origination activity is carried out by U.S. agents or contractors. The GLAM concludes that, even if loans to U.S. borrowers are originated by an independent company that lacks express authority to contractually bind a foreign lender to make loans, interest on the loans is effectively connected with the active conduct of a lending, financing or similar business in the U.S. and subject to net income tax.
The GLAM invites scrutiny, not just for the specific result it reaches with regard to lending by foreigners, but for its general reasoning. This reasoning has implications for nexus standards under § 864 more broadly.