Concept and Implementation of CFC Legislation

S. 841. Introduction

The digital era developed conjointly with international business and globalization. This progress has opened the space for base erosion and profit shifting. The uprising extent of BEPS, thanks to a digital economy and globalization, caused the political importance worldwide that persists or is even more critical for countries nowadays.

Many countries realized that it might be easier to tackle the profit shifting and base erosion in international business more effectively through international cooperation. The key factor for the cooperation was the awareness that national-based prevention is insufficient due to the obsolete domestic and international rules for international taxation established in an economic environment characterized by a lower degree of economic integration across borders.

The joint work in this matter on the OECD level was initiated in 2013 in the report “Addressing Base Erosion and Profit Shifting” which analyzed the BEPS related background and ended up in the BEPS final reports consisting of 15 actions.

The controlled foreign corporation (CFC) regulation is included in Action 3 of the BEPS Project and enables a country to tax income or profit from a...