CFC

Controlled Foreign Corporation (CFC)

USA

A foreign corporation in which more than 50% of the total combined voting power of its stock or the total value of its stock is owned by "United States Shareholders" (defined as a United States person (IRC § 957(c)) who owns 10% or more of the total combined voting power of foreign corporation's stock (IRC §§ 951(b) and 957(a)).

A United States person generally means a citizen or resident of the US, a domestic partnership, a domestic corporation, an estate whose income is subject to US federal income tax regardless of its source or a trust if the US can exercise primary supervision over the trust's administration and one or more United States persons are authorized to control all substantial decisions of the trust.

UK

controlled foreign company (CFC)

A company that is:

• Resident outside the UK;

• Controlled by persons resident in the UK; and

• Subject to a lower level of taxation in the territory in which it is resident.

Set out in Chapter IV of Part XVII of the Income and Corporation Taxes Act 1988 (ICTA), the CFC rules prevent UK companies from avoiding tax in the UK by diverting income to subsidiaries located in tax havens or countries with preferential tax regimes. HM Revenue & Customs can assess a UK resident company on profits of a CFC. There are a number of exemptions. No assessment can be made if, for example, an acceptable distribution policy is pursued under which a sufficient percentage of the foreign profits is being received (and taxed) in the UK or the CFC undertakes certain exempt activities (sections 747-756, ICTA).

Related links

controlled foreign company rules

subsidiary

tax haven