Concept and Implementation of CFC Legislation

S. 2621. The OECD BEPS and the EU ATAD

In response to challenges presented by the OECD 2013 Report on addressing BEPS, the OECD 2013 BEPS Action Plan recognized several sources of BEPS concerns. This culminated into the “OECD 2015 BEPS Final report on Action 3 – Designing Effective CFC Rules” which provided recommendations in the form of six building blocks of effective CFC rules. Thus, CFC rules aim to prevent artificial profit shifting and long-term deferral of taxation. The ATAD builds upon the OECD BEPS Project by closing existing loopholes in EU rules and forms part of a larger anti-tax avoidance package. The ATAD aims to provide a minimum level of protection for the EU internal market, strengthen protection against aggressive tax planning, and ensure a harmonized and coordinated approach in the EU to implementation of certain measures against BEPS. The ATAD came into force on 1 January 2019 and set out minimum standards across a range of anti-avoidance measures that include detailed rules in relation to CFCs within the EU.

Since CFC rules were successfully pioneered in 1962 in United States, many jurisdictions have followed in their footsteps on CFC regimes. However, due to certain d...