Concept and Implementation of CFC Legislation

S. 4781. Introduction

This chapter analyses the balance between CFC rules and the related compliance and administration costs. Compliance costs are the costs that taxpayers absorb due to the need to meet regulation requirements. These costs mostly contain human resources, IT system costs, and consultation fees. In recent years, there is more focus on compliance costs due to their rising trend. This increase of compliance is caused by the need of tax administrations to be one step ahead of some taxpayers who try to avoid paying the taxes.

This paper identifies connections between compliance and administration costs resulting from the complexity of tax legislation with a focus on CFC legislation. It walks through survey results on the complexity of tax systems and the status of CFC rules in terms of overall complexity. Furthermore, this paper goes through tax complexity and illustrates the complexity index, i.e. the impact of the countries’ decisions on their CFC legislations. It goes through categories of income, mainly focusing on passive income. The document also walks through analyses that can be used by countries. The paper gives an overview of the advantages and disadvantages of each o...