The alternative, a foreign-owned holding company, must operate under tight restrictions that forbid, for example, inter-company loans, foreign-exchange balancing, import-export, or even consolidated accounts across the subsidiaries.

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His firm is transitioning a Hangzhou-based portfolio company, microfinance service UPG, from a wholly-owned foreign entity to a Chinese firm.

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Such solutions deal with only a few of "thousands of related issues, " Upson said, including how to handle product sales to American consumers that take place on American company-owned servers based in foreign countries and how to tax the sale of digital goods and intellectual property such as software and computer-generated music.

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To do otherwise may set the precedent that by merely incorporating a subsidiary in the U.S., any foreign owned and operated company would be eligible to acquire -- or merge with -- U.S. security-sensitive firms without CFIUS review.

CENTERFORSECURITYPOLICY: Center For Security Policy

Morgan became the latest foreign bank to invest in a Chinese trust company, even as Western banks have sold stakes in Chinese state-owned banks.

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