Concept and Implementation of CFC Legislation

S. 2041. Introduction

Fair taxation and control over tax avoidance at the international level had become a high priority for many governments in the late 2000s. After the initiation of the BEPS Project by which the OECD aimed to tackle tax base erosion and profit shifting practices, the OECD had prepared and issued, among others, its final report on BEPS Action 3 designing effective controlled foreign company rules (hereinafter, BEPS Action 3 Report). The major aim of the BEPS Action 3 Report was to provide the countries with the comprehensive recommendations of how to tackle profit shifting through controlled foreign companies (hereinafter: CFC).

Following the presentation of the OECD BEPS final report, the EU Member States’ representatives predicted that many EU countries would rush to implement the proposed rules into their tax systems, each of them already having their own tax system. The lack of a common tax system in the EU could lead to an ineffective implementation of the proposed initiative. Therefore, the European Commission proposed a common framework with a minimum standard to ensure the implementation of the BEPS recommendations across all the 28 EU Member States. The European...