Concept and Implementation of CFC Legislation

S. 2961. Introduction

In recent years, controlled foreign company (CFC) legislation has gained increased importance on the global economic scene. CFC rules as anti-abuse provisions were adopted by the European Union in 2016 in the form of the Anti-Tax Avoidance Directive (ATAD or the Directive).

The CFC rules included in Articles 7 and 8 of the Directive, which are built upon the work of the OECD’s Action 3 of the BEPS Project, require Member States to implement homogeneous measures in order to flatten out the existing legal discrepancies with respect to CFC rules and therefore “improve resilience of the internal market as a whole against cross-border tax avoidance practices”.

CFC rules are designed to prevent resident taxpayers from shifting income into a low tax jurisdiction where the CFC is located and from stripping the profit base in its residence country. According to the ATAD, the new rules should not give rise to double taxation since this would jeopardize the efficiency of the internal market. Therefore, if the same item of income gets taxed more than once, Member States should grant relief for the taxes already paid in the other Member States.

The purpose of this chapter is to crit...