Tag Archives: CFC

UK: CFC reform – new consultation

Controlled foreign companies (CFCs) in low tax jurisdictions are a headache for tax authorities, with the potential for profit to be earned at a low tax rate and not contribute to the coffers of the government of the parent company’s location.  The potential for profits to be perhaps relocated to the lower tax jurisdiction has resulted in rules to stop such relocation.  In the US, the rules are known as Subpart F; in the UK, they are simply the CFC rules.

In both cases, the result of the rules is some or all of the profits of the CFC are attributed to the parent/shareholder, and so become subject to that in that way in the parent/shareholder’s country.  In the UK (and elsewhere) these rules haven’t quite kept up with the changes in the way in which businesses – particularly multinationals – are run, and it has become clear over the last decade or so that something needs to change.

Perhaps unsurprisingly, income from IP is one of the concerns with CFCs – IP doesn’t pass any border controls when you move it from one owner to another.

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EU: Fries with that?

McDonalds is relocating its European headquarters from an outlying part of London to Switzerland; needless to say, the move has absolutely nothing to do with tax.  Of course not, it’s all about enabling McDs “to conduct the strategic management of key international intellectual-property rights, including the licensing of those rights to our franchisees in Europe, from Switzerland”.

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UK: CFC rules up for review again

The Treasury’s multinational business forum has the UK’s controlled foreign companies (CFC) rules back onto its agenda.  The CFC rules are intended to stop UK companies routing passive income to subsidiaries in low tax jurisdictions overseas – passive income can include royalties from licences of intellectual property (amongst other forms of income).  The CFC rules were originally intended to be updated as part of the legislation bringing in an exemption from corporation tax for foreign dividends, but the proposed changes were so broad as to be unworkable and would have meant that UK companies would be penalised for owning any subisidiaries with IP; the Treasury then postponed the CFC rules update to have more time to consult with business.

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