Limiting Base Erosion

S. 2541. Introduction

The common thread linking the policies of all OECD and non-OECD states, leading to the introduction of CFC rules around the globe, is the perception of losing substantial tax revenues resulting from BEPS issues.

Tax planning strategies have been implemented over the years by a number of MNEs, using a variety of tax schemes from countries offering taxpayers the lure of massive tax savings and have led to the need for the development of a common approach to tackle harmful practices in this field. The first efforts to crack down on easily movable income, placed in a controlled foreign corporation (CFC) in order to avoid current taxation, originated in the United States where Subpart F of the Internal Revenue Code in 1962 was enacted. Subsequently, many other countries followed suit, with the objective of curtailing deferral of income taxation by designing their own CFC rules. According to a Policy Study published by the US Department of the Treasury in 2000 – three decades after the first implementation of CFC rules – there was still a clear interrelation between the rise and fall of the tax rates in the US and foreign countries and the amount of the income shifted betwe...