International Tax

CFCs—General Overview (Portfolio 926)

  • This Portfolio describes the rules for the U.S. federal income taxation of shareholders of controlled foreign corporations (CFCs) under Subpart F of the Internal Revenue Code.

Description

The Bloomberg Tax Portfolio, CFCs—General Overview begins with a discussion of the background and legislative history of Subpart F. A detailed analysis is provided of the ownership tests that must be satisfied for Subpart F to apply, including such key terms as “controlled foreign corporation,” “United States person,” and “United States shareholder.”

This Portfolio also describes the categories of items included in U.S. Shareholders’ income under Subpart F, and the rules for determining the amounts includible in income and the U.S. tax treatment. It further provides an overview of the tax results to U.S. Shareholders of various transactions involving CFCs, including the organization and reorganization of a CFC, CFC distributions, and liquidations and dispositions of CFCs. Finally, it describes the rules coordinating Subpart F with other special rules that apply to foreign entities and summarizes the return and compliance rules that apply to CFCs. Because the CFC Portfolios are meant to be used as a group in analyzing the Subpart F rules, the Worksheets of this Portfolio are intended for use not only with this Portfolio but also with the other CFC Portfolios.

Table of Contents

I. Introduction

II. Background and Legislative History

Introductory Material

A. Pre-Subpart F Rules

B. 1962 Subpart F Legislation

C. Significant Subsequent Legislative Changes

D. Other Significant Legislation of Relevance to CFCs

III. Overview of Subpart F and Related Provisions

A. Subpart F Provisions

B. Related Provisions

IV. Definition of U.S. Shareholder

A. General

B. U.S. Person

C. Stock Ownership Requirement

V. Definition of Controlled Foreign Corporation

Introductory Material

A. Corporate Classification

B. Foreign Status

C. Control Tests

D. U.S. Tax Considerations of CFC Status

VI. Stock Attribution Rules

A. General

B. Direct Ownership

C. Indirect Ownership

D. Constructive Ownership

E. Coordination of Different Attribution Rules

VII. Items Subject to Current Inclusion Under §951(a)

A. Introduction

B. Subpart F Income

C. Investments of Earnings in U.S. Property

D. Earnings Invested in Excess Passive Assets (Prior Law)

E. Previously Excluded Subpart F Income Withdrawn from Investment in Less Developed Countries (Prior Law)

F. Previously Excluded Subpart F Income Withdrawn from Foreign Base Company Shipping Operations (Prior Law)

VIII. Determination of the Amounts of §951(a) Items

Introductory Material

A. Thirty-Day Rule (Prior Law)

B. CFC Taxable Year

C. Calculation of the Amount of Subpart F Income

D. Calculation of §956 Amount

E. Calculation of §956A Amount (Prior Law)

F. Amount of Withdrawals from Less Developed Countries (Prior Law)

G. Amount of Withdrawals from Shipping Operations (Prior Law)

IX. Earnings and Profits Limitations

A. General

B. Calculation of Earnings and Profits

C. Current Earnings and Profits Limitation on Subpart F Income

D. Use of Accumulated and Chain Deficits to Reduce Subpart F Income

E. Limitation on Investment in U.S. Property

F. Limitation on Investment in Excess Passive Assets (Prior Law)

G. Limitation on Withdrawals of Previously Excluded Subpart F Income (Prior Law)

X. Pro Rata Share Taxable to U.S. Shareholders

A. U.S. Shareholders Subject to Taxation

B. Pro Rata Share

C. Time Includible in Income

D. Character of Inclusion

XI. Exclusion for Previously Taxed Income

A. General Taxation of CFC Distributions

B. Exclusionary Rules

XII. Deemed Paid Foreign Tax Credits

A. Overview

B. Deemed Paid Foreign Tax Credits in CFC Taxable Years After 2017

C. Deemed Paid Foreign Tax Credits in CFC Taxable Years Before 2018

XIII. Adjustments to Basis in CFC Stock and Other Property

A. Increases to Basis in CFC Stock and Other Property

B. Reductions to Basis in CFC Stock and Other Property

XIV. Election by Individuals to be Subject to Tax at Corporate Rates

XV. Organizations, Reorganizations and Dispositions of CFCs

A. Tax-Free Transactions Involving a CFC

B. Taxable Dispositions of Stock in a CFC

XVI. Coordination of Subpart F with Passive Foreign Investment Company Provisions

A. In General

B. PFIC Rules

C. Coordination Rules

XVII. Returns and Reporting Requirements

Introductory Material

A. Reporting of Subpart F Inclusions

B. Estimated Tax Liability for Subpart F Inclusions

C. Information Reporting

XVIII. Global Intangible Low-Taxed Income and Foreign-Derived Intangible Income

A. In General

B. Global Intangible Low-Taxed Income

C. Foreign Tax Credit Issues

D. Section 250 Deduction for Foreign-Derived Intangible Income and Global Intangible Low-Taxed Income

XIX. Limitation on Deduction of Business Interest Expense

A. Introduction

B. Section 163(j) Limitation on Deduction of Business Interest Expense

Lowell Yoder
Partner
McDermott Will & Emery LLP
Damon-Lyon
Damon Lyon
Partner
McDermott Will & Emery LLP
David-Noren
David Noren
Partner
McDermott Will & Emery LLP
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