CFC Rules - Tax Trap For Controlled Foreign Corporations

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In this Video we explain Controlled Foreign Corporation / Company (CFC) Rules and how countries use them to tax you in your country of residence based on the shares you hold in such a Company abroad. The CFC Rules got implemented within the last 5-10 Years by most countries to combat tax base erosion. The CFC Rules make it much harder to shift profits to a foreign holding company as an example, to not be tax liable on them "back home". Many tax avoidance strategies that used to work and were completely legal before 2013 do not work anymore now due to the implementation of the CFC Regulations. Most Countries did implement them by now, however there's still a handful of countries that do not have them.

CFC Rules do never create additional tax liability for the Company itself. They rather attribute certain categories of income of foreign companies to the shareholder(s) in order to counter offshore structures that shift income from the shareholder jurisdiction. Meaning if you personally are a shareholder in a company abroad you could become tax liable in your home country, based on that share, even if the company does not emit those profits, or pays them out to you.

Most Countries have their own specific definition of what a CFC is. And also what income is attributed as taxable income under the CFC Regulation largely depends on the country. Since 2019, over 50 EU and G20 States have implemented CFC Rules, based on the OECD Recommendations.

Countries without such Controlled Foreign Corporation Rules, include Switzerland, Panama, Thailand, Monaco, Costa Rica, Singapore and many more. A full list of such countries and also the specific implementation of these taxation rules can be found on the link provided above.

In this Video we teach what they are, the definition, we show multiple case studies and also tell you solutions how to avoid and mitigate them.