Concept and Implementation of CFC Legislation

S. 41. Introduction

Controlled Foreign Companies (hereafter CFC) are common rules among EU Member States and OECD countries that have been adopted since the late 1960s in order to counteract the practice of corporations setting up companies in low tax jurisdictions.

The history of CFCs, although it can be considered quite short since its first introduction in the United States, has rapidly evolved in the past decade due to the implementation of BEPS in 2015 and, more recently, with the introduction of the ATAD Directive by the EU. The following chapter aims to briefly analyse the history of the CFC rules and the policy considerations behind the introduction of such rules.

While approaching the topic of controlled foreign companies and the reason why so many countries have, sooner or later, introduced CFC regulations is the definition and meaning behind the term ‘deferral’ that has been continuously used since 1913 in relation to tax matters. According to the Merriam-Webster vocabulary, it is the act of delaying or deferring something; in tax, more specifically, deferral means the postponement of taxation to a later time.

According to international law and, more specifically, treaty law, in...