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Hence, since 198645 the income earned has been treated as domestic source income but it

still remains exempt from United States taxes when it is received by a foreign person if it

is not effectively connected with the conduct of a US trade or business. Moreover, if the

interest on the deposit is exempt from United States income tax the deposit itself is also

exempt from estate tax.46

In 1975, the Joint Committee on Taxation estimated that more than $3.1 billion dollars

annually is paid as interest to foreign persons and companies. This figure today can

perhaps be estimated as being in the hundreds of billions of dollars per year. This is only

heightened by the fact that because of the robust American economy and the tax benefits

on foreign earned income those more foreign enterprises are lured to invest in the United


As evidence of this, one can point to a very recent report48 by A.T. Kearney, the

renowned global consulting firm, which has compiled an annual survey of executives of

the 135 of the world’s 1,000 biggest companies, who gave their grades as to which

foreign countries they would be inclined to invest in. The United States handsomely won.

Most executives were inclined on the overall benefits of investing in the United States

given its share of the world market on consumption of goods and requirements of

45 46 47 See generally section 861 (a) (1) (A) and (c) See also Section 2105 (b) (1) See U.S. Taxation of Foreign Source Income of Individuals and Corporations and Domestic International Sales Corporation Provisions, Committee Print Prepared for the Use of the Committee on Ways and Means by the Staff of the Joint Committee on Internal Revenue Taxation, 94th Cong., 1st Sess., at p.23 (Sept. 29, 1975) February 17th, 2001 edition of The Economist News Magazine report on Foreign Investment page 104 48

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