Tag Archive for Subpart F Income

Advising International Business Ventures: Controlled Foreign Corporations And Subpart F

JASON FREEMAN

International operations often give rise to unique (and sometime unanticipated) compliance obligations and complex reporting requirements. Recent tax reform rules and regulations have imposed a number of new requirements.  This post focuses on, and provides a short introduction to, the Controlled Foreign Corporation (“CFC”) rules under Subpart F of the Code.

Historically, U.S. taxpayers were not subject to tax on the income derived by a foreign subsidiary from operations outside the United States.  This concept—deferring the income of the foreign subsidiary until it is repatriated in the form of a dividend or otherwise—is known as deferral.  The Subpart F provisions were a congressional attempt to eliminate deferral for certain types of categories of foreign income.

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Written by | Posted in Controlled Foreign Corporation • Subpart F Income

Licensing Companies And Intangibles

A Licensing Company is a type of offshore company that involves intangible property and the licensing of its use. It involves a variety of issues relating to country disparity. This use of the offshore situs usually is a result of a particular foreign situs imposing withholding tax upon royalty income and is not treaty accommodating. Also, one may find peculiar foreign situs rules that effect the disposition of industrial property rights.

Licensing Companies seek International Financial Centers that provide more reliable substantive judicial systems to protect intangible and substantive rights, as compared to a country situs of licensing use. Licensing Companies also provide flexibility. The flexibility lies in the contracting for rights to use in different foreign locations. The issues of Subpart F Income, source of income concepts, and arm’s length pricing of related parties are the focus of structural planning. Read More

Written by | Posted in Corporate • International

Foreign Corporations and Subpart F Income – Part I

TaxConnections Offshore BusinessForeign Corporations Generally. A foreign corporation entity is the vehicle of choice in utilizing the benefits of Financial Centers Offshore. A foreign corporation is one which is not created or organized in the United States and therefore is not a domestic corporation. A domestic corporation is taxable on its worldwide income. By definition, a foreign corporation is not a United States person and income is not taxable as a United States person. It is not subject to taxation of its accumulated earnings and profits until distributed to its United States shareholders. The general taxation of a foreign corporation is subject to the application of Subpart F Income taxation which is specifically designed to re-characterize foreign corporations as controlled foreign corporations.

Subpart F Income Taxation. Subpart F income rules are the core legislation designed to create controlled foreign corporations. By virtue of the codification, United States shareholders’ accumulated earnings of a foreign corporations’ profits are deemed distributed each taxable year. The accumulated earnings that would otherwise be lodged as foreign corporate accumulated earnings and not taxable until distributed, becomes taxable by Subpart F Income Read More

Written by | Posted in Corporate • International