Private equity funds pool capital for investment in privately-held businesses. Increasingly, PE funds are looking to global investment markets and foreign opportunities.
Investors and fund managers generally share a number of common tax goals, including minimizing “phantom” income—that is, profit allocations that do not have a corresponding cash distribution.
In keeping with this goal, funds investing outside of the United States typically attempt to mitigate, if not avoid, U.S. anti-deferral regimes. Historically, the two most notable regimes in this respect are the Subpart F rules applicable to U.S. shareholders of “controlled foreign corporations” (CFCs) and the “passive foreign investment company” (PFIC) regime. In addition, the Tax Cuts & Jobs Act introduced another commonly encountered anti-deferral regime: global intangible low-taxed income (“GILTI”).
Controlled Foreign Corporations (“CFCs”)