Controlled Foreign Corporations (CFCs)
A controlled foreign corporation (CFC) is a foreign corporation in which U.S. shareholders (each owning 10% or more by vote or value) collectively own more than 50% of the stock by vote or value.
Explanation
CFC rules are anti-deferral provisions that require U.S. shareholders to currently include certain categories of CFC income (Subpart F income and GILTI) regardless of whether the income is actually distributed. This prevents U.S. taxpayers from parking passive income or easily movable income in low-tax foreign subsidiaries to defer U.S. taxation. U.S. shareholders of CFCs must also comply with extensive reporting requirements, including Forms 5471 and related schedules.
Key Points
- •CFC = >50% U.S.-owned (by vote or value) foreign corporation
- •U.S. shareholders must include Subpart F income and GILTI currently
- •Extensive reporting requirements (Form 5471)
Exam Tip
A "U.S. shareholder" for CFC purposes means owning 10% or more by vote or value — this is a lower threshold than the 50% CFC determination.
Frequently Asked Questions
Related Topics
Subpart F Income
Subpart F income is certain categories of passive or easily movable income earned by a controlled foreign corporation that U.S. shareholders must include currently, regardless of distribution.
GILTI Tax
Global Intangible Low-Taxed Income (GILTI) is a category of CFC income that U.S. shareholders must include currently, designed to prevent profit shifting to low-tax jurisdictions through intangible assets.
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