Concept and Implementation of CFC Legislation

S. 1261. Introduction

The Action 3 final report of the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project aims to strengthen the controlled foreign company (CFC) rules by identifying the main challenges related to CFCs and establishing the technical and practical framework to address these challenges. In this regard, the OECD provides recommendations organized as building blocks through which it analyzes the key aspects that should be considered by countries in order to develop and implement effective CFC rules. According to the OECD, CFC rules should be developed in a way that they target taxpayers that represent a high risk to using CFCs for profit shifting purposes and, at the same time, they should reduce the administrative and compliance burden as much as possible. Therefore, CFC exemptions and threshold requirements comprise one of the building blocks analyzed by the OECD that aims at alleviating those burdens and facilitate the application of CFC rules in practice. In Chapter 3 of the Action 3 final report, the OECD particularly addresses some exemptions and threshold requirements that could be implemented by countries to limit the scope of CFC rules, i.e., de minimis thresho...