In most cases that would itself be a taxable transaction. It may be possible to structure it to be tax free (I’m not really sure–this is a bit beyond the bounds of my knowledge), but there are lots of other barriers to doing this in terms of securities law, foreign tax withholding concerns, corporate control (the subsidiary may no longer be a subsidiary but a separate company altogether with different ownership), and politics.
There are some examples of public companies doing “inversions,” where they merge with a foreign company and the foreign company survives the merger so that the company effectively moves overseas, allowing it to avoid US corporate tax altogether. But that’s a pretty major transaction that is extremely expensive to do and politically controversial.
Two issues with that:
- If you’re talking about shareholders of a US corporation (that is subject to corporate income taxes) trying to get profits out of a foreign subsidiary, then the profits would have to flow through the US corporation to get to the shareholders, and the US corporation would recognize the profits when they did so. With a nod to the late Senator Ted Stevens, corporate subsidiary structures are like a series of tubes…
- If you’re talking about the shareholders becoming direct shareholders in the foreign company so the money doesn’t flow through a US parent corporation, then there are the issues in my first set of responses above. Assuming you get through those issues, then non-US shareholders in the foreign corporation would no longer pay US taxes. But US shareholders are still supposed to report profits (and pay tax on them) even if they receive them in foreign bank accounts. I’m not familiar at all with the tax devices Mitt Romney and his ilk may use, but if they have overseas bank accounts,my guess (and again, this is pushing the limits of my knowledge) is that those accounts are not held personally by US individuals, but held by foreign companies that reinvest the profits from overseas ventures into other overseas ventures or find some other way so that there isn’t a profit realized by the US taxpayer. If/when the dollars come home to somebody in the US, there will be tax to be paid.
