International Tax

Foreign Personal Holding Companies (Portfolio 922)

  • This Portfolio examines U.S. taxation of U.S. shareholders of foreign personal holding companies.


The Bloomberg Tax Portfolio, Foreign Personal Holding Companies, analyzes the provisions of former §§551 through 558 along with related provisions and the regulations promulgated thereunder.

The Portfolio also discusses the rules that determined foreign personal holding company status, amounts subject to taxation, and filing requirements. Finally, the Portfolio addresses the relationships that existed among these rules, subpart F, the passive foreign investment company rules, and the personal holding company rules. The foreign personal holding company provisions were first enacted in 1937 as a complement to the personal holding company legislation of 1934. Both regimes were intended to deter U.S. citizens and residents from using corporations as so-called “incorporated pocketbooks” for their investment and personal services income. The personal holding company rules dealt with this problem by imposing a penalty tax on corporations that failed to distribute their undistributed personal holding company income. The foreign personal holding company provisions, by contrast, did not penalize foreign corporations that accumulate income. Rather, these provisions required the U.S. shareholders of such corporations to include in income a proportional share of the corporations’ “undistributed foreign personal holding company income.”

The term “foreign personal holding company” was defined as a foreign corporation which met certain gross income and stock ownership requirements. Under the gross income requirement, at least 60% of the corporation’s gross income for the taxable year had to be foreign personal holding company income. Under the stock ownership requirement, at any time during the corporation’s taxable year, more than 50% of the value of the corporation’s stock was required to be owned by or for not more than five individuals who were citizens or residents of the United States. Once a foreign corporation was classified as a foreign personal holding company, a proportionate share of its “undistributed foreign personal holding company income” had to be included in the gross income of its U.S. shareholders as a dividend.

The foreign personal holding company provisions were repealed by §413 of the American Jobs Creation Act of 2004, P.L. 108-357. The repeal was effective for taxable years of foreign corporations beginning after December 31, 2004, and for taxable years of U.S. shareholders with or within which such corporate years end.

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Dirk Suringa
Covington & Burling LLC