A domestic corporation operating in a foreign country through a branch office includes income from that operation in its worldwide income and deducts losses from its worlwide income. Net losses from foreign branch operations reduce the amount of income subject to the federal income tax. If at a future date the domestic corporation incorporates its foreign branch and transfers the branch assets to the foreign corporation in exchange for its stock or securities, any future unearned income of the foreign corporation is removed from United States tax jurisdiction, provided that the foreign corporation does not engage in the conduct of a trade or business within the United States.
E.C. Jr. Lashbrooke,
Recapture of Past Foreign Branch Losses on Transfer of Branch Assets to a Foreign Corporation,
Nw. J. Int'l L. & Bus.