Tax Treaty Case Law around the Globe 2022

9.1. Introduction

Whirlpool Financial Corporation; Consolidated Subsidiaries v. Commissioner of Internal Revenue (Case Nos. 20-1899/1900) is a great example of several phenomena typical to US international tax law that may not be fully understood outside of the United States. The case is particularly complicated because it involves bad law with worse facts. The law, known as Subpart F, or the US CFC rules, was enacted in the early 1960s as a compromise between the desire of the Kennedy Administration to eliminate deferral (i.e. the deferral of US taxation of profits of foreign subsidiaries of US corporations) and the insistence of the opposition that that would have devastating consequences for the United States in terms of competitiveness. The end result was a regime that sought to eliminate deferral only for “tainted” income, including passive income (which traditional CFC rules target), but also some active income. The latter includes foreign base company sales income (FBCSI). At the time, the concern was that US manufacturers could carve out their sales functions into subsidiaries in low-tax jurisdictions and shift or “park” income in jurisdictions where neither the manufactur...