Concept and Implementation of CFC Legislation

S. 1741. Introduction

From its introduction until to date, one of the main issues concerning the controlled foreign company (hereafter briefly also CFC) provision was its consistency to the tax policy goals pursued by countries.

Starting from a general overview on the tax policy goals that are pursued through CFC legislation for both capital import neutrality (CIN) and capital export neutrality (CEN) countries, this thesis will focus on one of the policy considerations outlined by the OECD in BEPS Action 3 – the avoidance of double taxation of CFC income. Specifically, the thesis explains if – and why – the effective avoidance of double taxation is important and consistent with both the CFC policy goals and the tax policy systems implemented by countries. Additionally, to what extent the countries should deal with all the more complex situations that, following the CFC application, cause double taxation.

The analysis is carried out by identifying the main situations in which double taxation could arise taking into consideration both those already included in BEPS Project Action 3 and what the interested parties have raised during the preliminary public consultation of the Action 3 document.

The study is then supported by the examination of what Germany, Spain, Sweden, France, Indonesia, and Brazil have implemented at the domestic level to avoid double taxation following CFC application as representative for both CEN and CIN countries.