Concept and Implementation of CFC Legislation

S. 1501. Introduction

The Organisation for Economic Co-operation and Development (OECD) Final Report on Base Erosion and Profit Shifting ( BEPS) Action 3 (named ‘Designing Effective Controlled Foreign Company Rules’) provides recommendations on this matter based on six building blocks: 1. Definition of a Controlled Foreign Company (CFC), 2. CFC exemptions and threshold requirements, 3. Definition of income, 4. Computation of income, 5. Attribution of income, 6. Prevention and elimination of double taxation. The OECD report aims to provide guidelines for legislators to identify effective CFC rules to avoid profit shifting to foreign entities.

The intent of this thesis is to analyse the recommendations the OECD has made in the Report on Action 3 for computing CFC income, taking into account both the policy goals of the action under discussion and the experiences acquired by some countries that have been applying CFC rules in recent years.

In order to understand the recommendations for computing CFC income outlined within BEPS Action 3 it is to be taken into account the main purpose of BEPS that was to close loopholes in international tax laws that allow multinational companies to shift profit...