US power companies investing offshore usually form an offshore holding company in a tax haven and then take steps to ensure that all entities below this holding company in the ownership chain are transparent for US tax purposes. This is usually a simple matter of filing a form with the IRS. However, IRS regulations require either that all shareholders in an offshore company must join in signing the form to treat the foreign company as transparent or else someone who is “authorized (under local law or the entity’s organizational documents)” can sign for it.
A problem arises frequently in places like China. No Chinese joint venture participant wants to sign an IRS form, and joint venture contracts usually fail to authorize someone to file US tax forms on its behalf.
The IRS said in a new private ruling that a board resolution authorizing someone to sign counts as “authority under local law.”