Tag Archive for Controlled Foreign Corporation

Garlock: How Not To Structure A Controlled Foreign Corporation

Hale Stewart

A CFC is a foreign corporation where a U.S. shareholder owns “more than” 50% of the offshore company. Practitioners quickly noted the 50% ownership requirement and correctly deduced that, if a non-U.S. shareholder owned the remaining 50%, the foreign corporation could escape being a CFC.

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Dividends From Foreign Corporations Part III – “Controlled Foreign Corporations”

As will be recalled from the previous blog posting that discussed so-called “Controlled Foreign Corporations” (CFC), a United States shareholder of a CFC can possibly be treated as having received “dividend” income at various times. These are when the US shareholder (i) has current income inclusions from the CFC under the anti-deferral regime (Subpart F income); (ii) has amounts actually distributed to him that had not been previously taxed as Subpart F income (these are ‘actual’ dividends); (iii) has amounts actually distributed to him that had been previously taxed as Subpart F income and (iv) recognizes gain on the sale of his CFC stock and the CFC has undistributed earnings and profits.

The question arises whether any of these amounts (i)-(iv), can be treated as “qualified dividend income”? Full details about the tax beneficial treatment of “qualified dividend Read more

United States CFC Rules: What Income Is Included?

The CFC (Controlled Foreign Corporation) rules regarding income inclusion have to thread a very small needle. On one hand, they need to prevent United States taxpayers from moving offshore, thereby taking advantage of a technical reading of the United States tax code that prevents taxation of non-US (foreign) corporations (see Part I and Part II). On the other hand, they can’t be so restrictive they prevent United States corporations from expanding internationally, thereby hindering legitimate business development. In effect, the rules need to exclude income derived from “legitimate” business expansion but include evasion.

Before moving forward, be advised: below is a general summation of the CFC income inclusion rules: there are many nuanced ins and outs to these rules that are far beyond the Read more

United States CFC Rules: What Is A United States Shareholder?

Like most subparts in the United States tax code (the CFC rules are a sub-part to sub-chapter N in the code), the CFC rules have specific concepts and definitions that apply only to this particular sub-part. The most important definition is that of a “US shareholder.” In addition, like most sections in the code, the CFC rules require us to reference multiple sections to get a complete definition.

Let’s start with section 957, which states:

For purposes of this subpart, the term “controlled foreign corporation” means any foreign corporation if more than 50 percent of— Read more