Subpart F Income of Controlled Foreign Corporations | U.S. Taxation
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- เผยแพร่เมื่อ 21 ต.ค. 2024
- U.S. companies have an incentive to shift profits to subsidiaries in low-tax countries. Congress has passed laws to prevent this; one way is by taxing Subpart F income of controlled foreign corporations as a constructive dividend.
A controlled foreign corporation (CFC) is a non-U.S. corporation in which at least 50% of (a) the combined voting power of all voting stock or (b) the total value of all stock is owned by U.S. shareholders (a U.S. shareholder is a U.S. person or company that owns at least 10% of the foreign corporation's voting stock).
When the CFC has Subpart F income, a U.S. shareholder will be taxed on their pro rata share of the Subpart F income, regardless of whether they receive a distribution. Subpart F income includes:
(1) foreign personal holding company income (royalties, interest, dividends, rent, annuities)
(2) foreign base company sales income (sales made to customers outside the CFC's country when a related party is involved and the CFC has little connection to the income)
(3) foreign base company services income (income from services performed for a related party outside the CFC's country)
For example, assume that a U.S. company owns 60% of the voting stock of an Irish subsidiary (the Irish subsidiary is thus a controlled foreign corporation). If the Irish subsidiary has $200,000 of interest income, this interest income would be considered Subpart F income. The U.S. company would be taxed on its pro rata share, which is $120,000 (60% * $200,000). The $120,000 would be taxable to the U.S. corporation as ordinary income (whether or not it receives a distribution) and the U.S. corporation would not receive a dividends received deduction.-
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michaelmclaugh...
Explained very clear in a simple way! Thank you. Waiting for the Subpart F exceptions video.
Great video. Only correction is it must be "more than 50%." If only 50% is owned by US shareholders, you are in the clear.
Great stuff. Learned this in school during my Masters of Accounting program
Glad it brought back some good memories!
Good summary but I think you meant “at least 51% (or more than 50%) to be a CFC”
Good point.
what's the downward attribution rule when a foreign company owns a US subsidiary?
Isn't the foreign base company sales and services income now be taxed as GILTI?
No, I don't think so. GILTI taxes active income which by definition is excluded from subpart F income.
@@redacted3799 Yes. The way I was taught - ordering rules - subpart f first, then GILTI.
@@alecstivers6604 correct
Thank you!
Thanks for creating. As always, this video is great! Hypothetically, in this example, if the Irish CFC were to resell the toys in Ireland would the revenue still be considered subpart f income? thanks
Unlikely, in that case, the income would be active business income which is an exception to the subpart F regime.
Love it. Thanks