Controlled Foreign Company Legislation

Preface xli

Part One
Chapter 1: Controlled Foreign Company Legislation: General Report 3
Richard Krever
1.0. Introduction 3
1.1. The Anti-Tax Avoidance Directive 6
1.2. When is a foreign company “controlled” by resident persons? 7
1.3. Do the attribution rules apply to all natural persons and legal persons? 9
1.4. Do the CFC attribution rules apply to all CFCs or only those located in lower tax jurisdictions? 9
1.5. Do the attribution rules apply to all income of the CFC or only particular forms of income? 10
1.6. Do the attribution rules catch roll-up funds? 11
1.7. Do the attribution rules catch trusts? 12
1.8. How is CFC income attributed to resident shareholders? 13
1.9. The state of play and looking forward 13

Chapter 2: The European Union and the Anti-Tax Avoidance Directive 15
Martin Klokar and Mario Riedl
2.1. The European Union and its powers in the field of direct taxation 15
2.2. The Anti-Tax Avoidance Directive 18

Part Two
Chapter 3: Controlled Foreign Company Legislation in Argentina 23
Axel A. Verstraeten
3.1. Characteristics of Argentine CFC legislation 23
3.2. Implementation of Articles 7 and 9 of the ATAD 32
3.3. Special CFC Rules 32
3.4. CFC legislation and other anti-abuse provision 37
3.5. CFC legislation and tax treaties 37
3.6. CFC legislation and constitutional law/EU law 38
3.7. Improving the current rules 38
3.8. Outlook: The future of CFC legislation 40

Chapter 4: Controlled Foreign Company Legislation in Australia 41
Richard Krever and Kerrie Sadiq
4.1. Characteristics of Australian CFC legislation 41
4.1.1. Main policy considerations and changes over time 41
4.1.2. Definition of CFC 44
4.1.3. Attributable income of a CFC 45
4.1.4. Rules against double taxation 48
4.2. Implementation of Articles 7 and 8 of the Anti-Tax Avoidance Directive 48
4.3. Special CFC rules 48
4.3.1. Foreign investment fund regime 49
4.3.2. Foreign branch income investment fund regime 50
4.3.3. Transferor trust regime 50
4.3.4. Limited partnerships 53
4.4. CFC legislation and other anti-abuse provisions 53
4.5. CFC legislation and tax treaties 54
4.6. CFC legislation and constitutional law/EU law 55
4.7. Improving the current rules 55
4.8. Outlook: The future of CFC legislation 56

Chapter 5: Controlled Foreign Company Legislation in Austria 59
Martin Klokar and Mario Riedl
5.1. Characteristics of Austrian CFC legislation 59
5.1.1. Object and purpose of CFC legislation 59
5.1.2. Austria’s initial rejection of CFC legislation 60
5.1.3. Similar existing provisions in Austria 61
5.2. Implementation of Articles 7 and 8 of the Anti-Tax Avoidance Directive 61
5.2.1. EU CFC requirements 61
5.2.2. Austrian Annual Tax Act 2018 62
5.2.3. CFC legislation in section 10a Austrian Corporate Income Tax Act 63
5.2.4. Technical implementation of CFC legislation in Austria 70
5.3. Special CFC rules 72
5.4. CFC legislation and other anti-abuse provisions 73
5.4.1. General anti-abuse rule: Section 22 Federal Fiscal Code 73
5.4.2. Switch-over clause: Section 10a(7) Corporate Income Tax Act 75
5.4.3. Relationship between SAAR and GAAR in Austria 76
5.5. CFC legislation and tax treaties 79
5.5.1. Tax treaties and the applicability of CFC rules 79
5.5.2. Explicit treaty override 80
5.5.3. Elimination of double taxation 81
5.6. CFC legislation and constitutional law/EU law 83
5.6.1. Compatibility of CFC rules with EU law 83
5.6.2. The Austrian substance test and EU law 84
5.7. Improving the current rules 86
5.8. Outlook: The future of CFC legislation 86

Chapter 6: Controlled Foreign Company Legislation in Belgium 89
Gilles Van Hulle and Jean-Philippe Van West
6.1. Characteristics of Belgian CFC legislation 89
6.1.1. Qualification of a CFC – foreign entity 90
6.1.2. Qualification of a CFC – control requirement 90
6.1.3. Qualification of a CFC – low taxation 91
6.1.4. Attribution of income 91
6.2. Implementation of Articles 7 and 8 of the Anti-Tax-Avoidance Directive 93
6.3. Special CFC rules 97
6.4. CFC legislation and other anti-abuse provisions 98
6.5. CFC legislation and tax treaties 100
6.6. CFC legislation and constitutional law/EU law 101
6.7. Improving the current rules 102
6.7.1. Risk of double (CFC) taxation 102
6.7.2. Compliance costs 104
6.7.3. De minimis threshold 104
6.7.4. Burden of proof 104
6.8. Outlook: The future of CFC legislation 105

Chapter 7: Controlled Foreign Company Legislation in Brazil 107
Luís Eduardo Schoueri and Guilherme Galdino
7.1. Characteristics of Brazilian CFC legislation 107
7.1.1. Four phases of Brazilian WWIT legislation 107
7.1.2. The current taxation on worldwide basis under Law 12,973/2014 112
7.1.2.1. Definitions of controlled and associated companies 112
7.1.2.2. Legally differentiated companies 114
7.1.2.3. The taxation imposed by Law 12,973/2014 116
7.1.3. Brazilian WWIT legislation: Not a typical CFC legislation 119
7.2. Special CFC rules 120
7.3. CFC legislation and other anti-abuse provisions 121
7.4. CFC legislation and tax treaties 122
7.5. CFC legislation and constitutional law 125
7.6. Improving the current rules 126
7.7. Outlook: The future of CFC legislation 128

Chapter 8: Controlled Foreign Company Legislation in Bulgaria 131
Ivan Lazarov
8.1. Characteristics of Bulgarian CFC legislation 131
8.2. Implementation of Articles 7 and 8 of the Anti-Tax-Avoidance Directive 135
8.3. Special CFC rules 138
8.4. CFC legislation and other anti-abuse provisions 138
8.5. CFC legislation and tax treaties 139
8.6. CFC legislation and constitutional law/EU law 140
8.7. Improving the current rules 141
8.8. Outlook: The future of CFC legislation 142

Chapter 9: Controlled Foreign Company Legislation in Chile 145
Andrés Bustos Baraona and Felipe Yáñez
9.1. Characteristics of Chilean CFC legislation 145
9.2. Implementation of Articles 7 and 8 of the Anti-Tax-Avoidance Directive 150
9.3. Special CFC rules 151
9.4. CFC legislation and other anti-abuse provisions 151
9.5. CFC legislation and tax treaties 153
9.6. CFC legislation and constitutional law 154
9.7. Improving the current rules 154
9.8. Outlook: The future of CFC legislation 155

Chapter 10: Controlled Foreign Company Legislation in China 157
Bristar Mingxing Cao and Chun Geng
10.1. Characteristics of Chinese CFC legislation 157
10.1.1. China’s current CFC rules 157
10.1.2. Three conditions for determining a controlled foreign company 157
10.1.3. Formula for calculating profit distribution 158
10.1.4. Definition of a CFC 159
10.1.5. Definition of CFC income 159
10.1.5.1. How to define CFC income in China 159
10.1.5.2. The main method in China 159
10.1.5.3. Tax exemptions and thresholds 160
10.1.6. CFC and anti-double taxation 160
10.1.6.1. Deduction in accordance with relevant provisions of tax treaties or tax laws 160
10.1.6.2. Other provisions 161
10.1.7. Treatment of income earned by lower-tier subsidiaries 161
10.1.8. Does your country apply CFC legislation only to corporations or also to individuals as shareholders? 161
10.2. Special CFC rules 163
10.2.1. China’s CFC rules 163
10.2.2. Typical ways to avoid falling under the scope of CFC legislation 164
10.2.3. Other anti-deferral rules 165
10.3. Provisions of China’s domestic law on anti-abuse measures 166
10.3.1. The beneficial owner clause 166
10.3.2. Terms for reasonable commercial purposes 167
10.3.3. Procedural rules 168
10.4. CFC legislation and tax treaties 169
10.4.1. A general description 169
10.4.1.1. Overview of tax treaties in China 169
10.4.1.2. Overview of CFC Legislation in China 169
10.4.1.3. Role of the OECD Model in the interpretation of tax treaties 170
10.4.2. Relationships with tax treaties 170
10.4.2.1. The relationship between international law and domestic law 170
10.4.2.2. The relationship between CFC regulations and tax treaties 170
10.4.2.3. The impact of OECD Model (2017) on the relationship between CFC legislation and tax treaties in China 171
10.5. Improving the current rules 171
10.5.1. Main problems 171
10.5.2. Improvement 173
10.5.3. CFC rules implementing cost and efficiency 174
10.6. Outlook: The future of CFC legislation 175
10.6.1. The principle of CFC legislation 175
10.6.2. The necessity of CFC legislation 176
10.6.3. The rationality of the CFC legislation 177
10.6.4. International cooperation is the trend 177
Bibliography 178

Chapter 11: Controlled Foreign Company Legislation in Croatia 183
Nevia Čičin-Šain and Stjepan Gadžo
11.1. Characteristics of Croatian CFC legislation 183
11.2. Implementation of Articles 7 and 8 of the Anti-Tax-Avoidance Directive 186
11.3. Special CFC rules 188
11.4. CFC legislation and other anti-abuse provisions 188
11.5. CFC legislation and tax treaties 190
11.6. CFC legislation and constitutional law/EU law 192
11.7. Improving the current rules 193
11.8. Outlook: The future of CFC legislation 194

Chapter 12: Controlled Foreign Company Legislation in Cyprus 199
Eleni Apostolidou
12.1. Characteristics of CFC legislation 199
12.2. Implementation of Articles 7 and 8 of the Anti-Tax-Avoidance Directive 201 rules 206
12.4. CFC legislation and other anti-abuse provisions 207
12.5. CFC legislation and tax treaties 212
12.6. CFC legislation and constitutional law/EU law 214
12.7. Improving the current rules 217
12.8. Outlook: The future of CFC legislation 217

Chapter 13: Controlled Foreign Company Legislation in Czech Republic 221
Petra Kamínková and Jiří Kostohryz
13.1. Characteristics of Czech CFC legislation 221
13.2. Implementation of Articles 7 and 8 of the Anti-Tax Avoidance Directive 222
13.2.1. Attribution of CFC income 222
13.2.2. Definition of controlling and controlled company 222
13.2.3. Low taxation and lack of substantive economic activity 223
13.2.4. CFC income 224
13.2.5. Prevention of double taxation 226
13.2.6. Procedural rules 227
13.3. Special CFC rules 228
13.4. CFC legislation and other anti-abuse provisions 228
13.5. CFC legislation and tax treaties 230
13.6. CFC legislation and constitutional law/EU law 231
13.7. Improving current rules 232
13.8. Outlook: The future of CFC legislation 233

Chapter 14: Controlled Foreign Company Legislation in Denmark 235
Peter Koerver Schmidt
14.1. Characteristics of CFC legislation 235
14.2. Implementation of Articles 7 and 8 of the Anti-Tax Avoidance Directive 243
14.3. Special CFC rules 246
14.4. CFC legislation and other anti-abuse provisions 247
14.5. CFC legislation and tax treaties 249
14.6. CFC legislation and constitutional law/EU law 250
14.7. Improving the current rules 254
14.8. Outlook: The future of CFC legislation 255

Chapter 15: Controlled Foreign Company Legislation in Finland 257
Kristiina Äimä and Henri Lyyski
15.1. Characteristics of Finnish CFC legislation 257
15.1.1. Background 257
15.1.2. Structure of the CFC rules 258
15.1.3. Ownership requirement 259
15.1.4. Calculation of CFC income 260
15.1.5. Prevention of double taxation 261
15.2. Implementation of Articles 7 and 8 of the Anti-Tax Avoidance Directive 262
15.3. Special CFC rules 264
15.4. CFC legislation and other anti-avoidance rules 264
15.4.1. General anti-avoidance rule 264
15.4.2. Arm’s length principle 266
15.4.3. Permanent establishments 266
15.4.4. Hierarchy of different mechanisms 267
15.5. CFC legislation and tax treaties 267
15.6. CFC legislation and constitutional law/EU law 270
15.7. Improving the current rules 270
15.8. Outlook: The future of CFC legislation 271

Chapter 16: Controlled Foreign Company Legislation in France 273
Clémence Garcia
16.1. Characteristics of the CFC legislation in France 273
16.1.1. The path to the current legislation 273
16.1.2. Outline of the CFC rules for corporate taxpayers (Sec. 209 B FTC) 274
16.1.2.1. General principles 274
16.1.2.2. Indirect holding of stock 275
16.1.2.3. Privileged tax regime 275
16.1.2.4. Taxable income 276
16.1.2.5. Safe harbour clauses 277
16.1.3. Outline of the CFC rules for individuals (Sec. 123 bis FTC) 279
16.1.3.1. General principles 279
16.1.3.2. CFCs located in non-cooperative states 280
16.1.3.3. Safe harbour clause 281
16.2. Implementation of the ATAD 282
16.2.1. Article 7: Controlled foreign company rules 282
16.2.2. Article 8: Computation of foreign company income 283
16.3. Special CFC rules 283
16.4. CFC legislation and other anti-abuse provisions 284
16.4.1. Overview of anti-abuse provisions 284
16.4.2. General anti-abuse rule (GAAR) and CFC legislation 285
16.5. CFC legislation and tax treaties 287
16.5.1. The Schneider decision (2002) 287
16.5.2. Current status of the CFC rules regarding tax treaties 288
16.6. CFC legislation and constitutional law/EU law 289
16.6.1. CFC rules and the Constitution 289
16.6.2. CFC rules and EU law 290
16.7. Improving the current rules 291
16.8. Outlook: The future of CFC legislation 292

Chapter 17: Controlled Foreign Company Legislation in Germany 293
Jochen Gerbracht
17.1. Characteristics of German CFC legislation 293
17.1.1. Main policy considerations 293
17.1.2. Taxpayer definition 294
17.1.3. CFC definition 295
17.1.3.1. Covered entities 295
17.1.3.2. Control 296
17.1.3.3. Low taxation 297
17.1.4. CFC income 298
17.1.4.1. Conceptual design 298
17.1.4.2. Substance carve-out 299
17.1.4.3. De minimis rule 299
17.1.5. Legal consequences 300
17.1.5.1. Computation of the CFC amount 300
17.1.5.2. Attribution of the CFC amount 301
17.1.5.3. Taxation of the CFC amount 301
17.1.5.4. Loss relief 302
17.1.5.5. Avoidance of double taxation 302
17.1.5.6. Tax return 303
17.2. Implementation of Articles 7 and 8 of the Anti-Tax Avoidance Directive 303
17.2.1. Current state of implementation 303
17.2.2. Main differences between the ATAD and German CFC legislation 304
17.2.2.1. Control 304
17.2.2.2. Low taxation 305
17.2.2.3. CFC income 305
17.3. Special CFC rules 306
17.3.1. Income with capital investment nature 306
17.3.2. Avoidance of CFC rules 307
17.4. CFC legislation and other anti-abuse provisions 308
17.5. CFC legislation and tax treaties 309
17.5.1. Relationship between CFC legislation and tax treaties 310
17.5.2. Resolving the (potential) norm conflict 311
17.6. CFC legislation and constitutional law/EU law 311
17.6.1. Constitutional limits 311
17.6.1.1. Structural enforcement deficit 312
17.6.1.2. Ability to pay 313
17.6.1.3. Clarity of law 314
17.6.2. EU law 315
17.7. Improving the current rules 316
17.7.1. Addressing the “penalty taxation” 317
17.7.2. Avoiding legal uncertainty 317
17.7.3. Improving clarity of law and promoting innovation 317
17.8. Outlook: The future of CFC legislation 318

Chapter 18: Controlled Foreign Company Legislation in Hungary 319
Borbála Kolozs and Annamária Kőszegi
18.1. Characteristics of Hungarian CFC legislation 319
18.1.1. General introduction 319
18.1.2. Policy considerations over time 319
18.2. Implementation of Articles 7 and 8 of the Anti-Tax Avoidance Directive 326
18.3. Special CFC rules 327
18.4. CFC legislation and other anti-abuse provisions 328
18.5. CFC legislation and tax treaties 329
18.6. CFC legislation and constitutional law/EU law 330
18.7. Improving the current rules 330
18.8. Outlook: The future of CFC legislation 331

Chapter 19: Controlled Foreign Company Legislation in Indonesia 333
Yusuf Wangko Ngantung and R. Herjuno Wahyu Aji
19.1. Characteristics of the Indonesian CFC legislation 333
19.1.1. Indonesia’s worldwide tax system 333
19.1.2. History of Indonesia CFC regulation 334
19.1.3. Features of Indonesia’s CFC regime 337
19.1.3.1. Definition of a CFC 338
19.1.3.2. Level of foreign tax paid by a CFC 339
19.1.3.3. Nature of income earned by a CFC 339
19.1.3.4. Computation of CFC income 340
19.1.3.5. Exemption for public companies 341
19.1.3.6. Foreign tax credits 341
19.1.3.7. The timing of deemed dividends 342
19.2. Implementation of Articles 7 and 8 of the Anti-Tax Avoidance Directive 342
19.3. Special CFC rules 342
19.4. CFC legislation and other anti-abuse provisions 343
19.5. CFC legislation and tax treaties 344
19.6. CFC legislation and constitutional law 345
19.7. Improving the current rules 347
19.8. Outlook: The future of CFC legislation 348

Chapter 20: Controlled Foreign Company Legislation in Italy 351
Raul-Angelo Papotti and Simone S. Schiavini
20.1. Characteristics of Italian CFC legislation 351
20.1.1. Introduction 351
20.1.2. Policy considerations 351
20.1.3. Subjective scope 353
20.1.4. Objective scope 353
20.1.4.1. Control requirements 354
20.1.4.2. Identification of “low-tax jurisdictions” 355
20.1.5. Attribution of income to the shareholder 357
20.1.5.1. Exemptions to the attribution of income to the shareholder (safe harbours) 359
20.1.5.2. Procedural issues 361
20.1.6. “White-list” CFC legislation 361
20.1.6.1. Exemption to the white-list CFC rule (safe harbour) 363
20.1.7. Elimination of double taxation 364
20.1.8. Audit procedure 366
20.2. Implementation of Articles 7 and 8 of the ATAD 366
20.2.1. Exemption to the attribution of income to the shareholder (safe harbour) 369
20.3. Special CFC rules 369
20.4. CFC legislation and other anti-abuse provisions 370
20.5. CFC legislation and tax treaties 370
20.6. CFC legislation and constitutional law/EU law 371
20.7. Improving the current rules 373
20.8. Outlook: The future of CFC legislation 373

Chapter 21: Controlled Foreign Company Legislation in Japan 375
Saki Urushi and Michiko Suzuki
21.1. Characteristics of Japanese CFC legislation 375
21.1.1. Main policy of CFC legislation in Japan 375
21.1.2. Overview of the CFC amendments 377
21.1.3. Overview of current CFC rules 380
21.1.3.1. Taxpayer 381
21.1.3.2. Definition of “foreign related company” 382
21.1.3.3. CFC taxation on entity basis 382
21.1.3.4. CFC taxation on passive income 387
21.1.3.5. Tax credit 389
21.1.4. Summary 389
21.2. Implementation of Articles 7 and 8 of the ATAD 389
21.3. Special CFC rules 390
21.4. CFC legislation and other anti-avoidance measures 390
21.4.1. The nature of CFC legislation and relation between CFC legislation and “principle of taxation on actual beneficiaries” 390
21.4.2. Souki Steamship case 391
21.4.3. Analysis 392
21.4.4. Relation between CFC legislation and other antiavoidance measures 393
21.5. CFC legislation and tax treaties 395
21.5.1. Situations in other countries and the OECD 395
21.5.2. Glaxo case 395
21.5.3. Analysis 397
21.6. Constitution and CFC legislation 398
21.7. Improving the current rule 400
21.8. Outlook: The future of the CFC legislation 402

Chapter 22: Controlled Foreign Company Legislation in Latvia 405
Karlis Ketners
22.1. Characteristic of the controlled foreign company legislation in Latvia 405
22.2. Implementation of Articles 7 and 8 of the
Anti-Tax Avoidance Directive 413
22.3. Special CFC rules 413
22.4. CFC legislation and other anti-abuse provisions 414
22.5. CFC legislation and tax treaties 415
22.6. CFC legislation and constitutional law/EU law 415
22.7. Improving the current rules 416
22.8. Outlook: The future of CFC legislation 416

Chapter 23: Controlled Foreign Company Legislation in the Republic of North Macedonia 419
Aleksandra Maksimovska Stojkova
23.1. Characteristics of the CFC legislation in the Republic of North Macedonia 419
23.1.1. Defining a CFC 420
23.1.2. Determinants of CFC in North Macedonia 421
23.1.3. CFC rules in practice 423
23.2. Implementation of Articles 7 and 8 of the Anti-Tax Avoidance Directive 423
23.2.1. Differences of Macedonian legislation from other EU countries 423
23.2.2. The new legal changes regarding anti-avoidance rules 424
23.2.3. CFC control requirements for affiliated companies 424
23.3. Special CFC rules 425
23.4. CFC legislation and other anti-abuse provisions 425
23.4.1. New thin capitalization rules 428
23.4.2. Miscellaneous rules 429
23.5. CFC and tax treaties 429
23.5.1. Rules to prevent or eliminate double taxation 429
23.6. CFC legislation and constitutional law/EU law 430
23.7. Improving the current rules 431
23.8. Outlook: The future of CFC legislation in the country 432

Chapter 24: Controlled Foreign Company Legislation in the Netherlands 433
Raymond P.C. Adema, Jan N. Bouwman and Irene J.J. Burgers
24.1. Characteristics of the Dutch CFC legislation before implementation of Articles 7 and 8 of the Anti-Tax-Avoidance Directive 433
24.1.1. Introduction 433
24.1.2. Policy considerations regarding CFCs in the Netherlands and the minor role of CFC legislation until 2019 433
24.1.3. CFC legislation applied to individuals 437
24.2. Implementation of Articles 7 and 8 of the Anti-TaxAvoidance Directive 438
24.2.1. Policy considerations regarding the implementation in the Netherlands 438
24.2.1.1. CFC provisions were already part of Dutch national tax legislation 438
24.2.1.2. As from 2019, additional CFC rules that are (partly) based on Model A are applicable 439
24.2.2. Additional CFC rules implemented in the Netherlands 439
24.2.2.1. Controlled foreign company located in a low-tax jurisdiction 439
24.2.2.1.1. Controlling interest test 440
24.2.2.1.2. Located in a designated state (residence requirement) 440
24.2.2.1.3. Exceptions 442
24.2.2.2. PE located in a low-tax jurisdiction 442
24.2.2.2.1. Located in a designated state 443
24.2.2.2.2. Exception 443
24.2.2.3. Tainted income 443
24.2.2.4. Substance carve-out 445
24.2.2.5. Crediting of foreign corporate tax 446
24.2.2.5.1. Avoidance of juridical double taxation 446
24.3. Special CFC rules 447
24.4. CFC legislation and other anti-abuse provisions 447
24.4.1. Fraus legis doctrine 447
24.4.2. Relation between the fraus legis doctrine and the CFC provisions of the ATAD 448
24.5. CFC legislation and tax treaties 449
24.5.1. Introduction 449
24.5.2. Article 15e(10) and (11) and Article 13ab of the CTA 449
24.5.2.1. Tainted PE income (Article 15e(10) and (11) CTA) 449
24.5.2.2. Tainted CFC income (Article 13ab CTA) 451
24.5.2.3. Article 13ab CTA complimentary to the arm’s length principle and effective place of management rules 451
24.5.2.4. No grandfathering rule for treaty countries
designated as a low-tax jurisdiction 451
24.5.3. Article 8b CTA and the OECD Transfer Pricing Guidelines 452
24.5.4. Tax treaties containing the pre-2010 Article 7 OECD Model and the ATAD 452
24.6. CFC legislation and constitutional law/EU law 453
24.6.1. Constitutional law 453
24.6.2. EU law 453
24.7. Improving the current rules 454
24.8. Outlook: The future of CFC legislation 460

Chapter 25: Controlled Foreign Company Legislation in New Zealand 463
Andrew M.C. Smith and Adrian J. Sawyer
25.1. Characteristics of New Zealand’s CFC legislation 463
25.2. Implementation of Articles 7 and 8 of the Anti-Tax Avoidance Directive 470
25.3. Special CFC rules 471
25.4. CFC legislation and other anti-abuse provisions 474
25.5. CFC legislation and tax treaties 475
25.6. CFC legislation and constitutional law/EU law 480
25.7. Improving the current rules 480
25.8. Outlook: The future of CFC legislation 481
Appendix: Article 23 of the China-New Zealand DTA 482

Chapter 26: Controlled Foreign Company Legislation in Norway 485
Thor Leegard
26.1. Characteristics of Norwegian CFC legislation 485
26.1.1. Introduction 485
26.1.2. Overview of the legislation 488
26.1.3. Norwegian control test 488
26.1.4. Definition of low-taxed entities 491
26.1.5. Determination of CFC income 493
26.1.6. Chain of CFCs 495
26.1.7. Distributions from and gains on realization of a CFC 495
26.1.8. Exit from CFC 496
26.1.9. Exceptions from CFC taxation – Tax treaties and the EEA Agreement 497
26.2. Implementation of Articles 7 and 8 of the ATAD 499
26.3. Special CFC rules 499
26.4. CFC legislation and other anti-abuse provisions 501
26.5. CFC legislation and tax treaties 501
26.6. CFC legislation and constitutional law/EEA law 501
26.7. Improving the current rules 503
26.8. Outlook: The future of CFC legislation 506

Chapter 27: Controlled Foreign Company Legislation in Pakistan 509
Muhammad Ashfaq Ahmed
27.1. Characteristics of Pakistani CFC legislation 509
27.1.1. Defining a CFC 511
27.1.2. Legal and economic control 512
27.1.3. Timing of control 512
27.1.4. Qualifying thresholds 512
27.1.5. Listing on the stock exchange 513
27.1.6. Passive income 513
27.1.7. Attribution 513
27.1.8. Onus 514
27.1.9. Miscellaneous 514
27.2. Implementation of Articles 7 and 8 of the Anti-Tax Avoidance Directive 515
27.3. Special CFC rules 515
27.4. CFC legislation and other anti-abuse provisions 516
27.5. CFC legislation and tax treaties 518
27.6. CFC legislation and constitutional law/EU law 520
27.7. Improving the current rules 520
27.8. Outlook: The Future of CFC Legislation 521

Chapter 28: Controlled Foreign Company Legislation in Peru 523 Manuel Augusto Carrión Camayo
28.1. Characteristics of Peruvian controlled foreign company legislation 523
28.1.1. General concepts 523
28.1.2. Attribution of income to controller 524
28.1.3. Entities that can qualify as a CFC 525
28.1.3.1. Characteristics 525
28.1.3.2. Independent personality requirement 526
28.1.3.3. Location requirement: Definition of low-taxation jurisdiction 526
28.1.3.4. Ownership requirement: Verifying control over the entity 528
28.1.3.5. Entities included (top- and low-tier companies) 529
28.1.4. Income of the CFC attributable to the controller 529
28.1.4.1. General definition of passive income 529
28.1.4.2. Source of the income 530
28.1.4.3. Exceptions to passive income 532
28.1.5. Calculation of CFC income 533
28.1.5.1. Rules to calculate CFC income 533
28.1.5.2. Attribution of income to the controller 534
28.1.5.3. Thresholds 535
28.1.5.4. Obligations for the controller 536
28.1.6. Prevention of double taxation 536
28.1.7. Application of CFC Regime to physical persons 537
28.2. Implementation of Articles 7 and 8 of the Anti-Tax Avoidance Directive 537
28.3. Special CFC rules 538
28.3.1. Special CFC rules in function of the location of the CFC or its activity 538
28.3.2. Special rules for funds and trusts 539
28.3.3. Typical ways to avoid falling under the scope of a CFC regime 539
28.4. CFC legislation and other anti-abuse provisions 540
28.4.1. CFC legislation and other specific anti-abuse rules 540
28.4.2. CFC legislation and the Peruvian GAAR 541
28.4.2.1. Status of the Peruvian GAAR 541
28.4.2.2. Relation with the GAAR 542
28.5. CFC legislation and tax treaties 544
28.5.1. General approach 544
28.5.2. Special cases: DTCs with Portugal and Mexico 546
28.6. CFC legislation and constitutional law/EU law 547
28.7. Improving the current rules 547
28.8. Outlook: The future of CFC legislation 548

Chapter 29: Controlled Foreign Company Legislation in Poland 551
Adrian Wardzynski
29.1. Characteristics of CFC legislation in Poland 551
29.1.1. Defining a CFC 552
29.1.1.1. Entity considerations 553
29.1.1.2. Type 1 CFCs 553
29.1.1.3. Types 2 and 3 CFCs 557
29.1.2. Defining CFC income 559
29.1.3. Attribution of CFC income 559
29.1.4. Rules to prevent and avoid double taxation 561
29.1.4.1. Foreign tax credits 561
29.1.4.2. Dividends and gains on disposition of shares 562
29.1.5. Substance carve-out 562
29.1.6. Internal anti-abuse rule 563
29.2. Implementation of Articles 7 and 8 of the ATAD 563
29.2.1. Entity scope 564
29.2.2. Determination of control 564
29.2.3. Carry-forward of losses 565
29.2.4. Attributable CFC income 565
29.2.5. De minimis thresholds 566
29.2.6. Anti-abuse safeguards 567
29.3. Special CFC rules 567
29.4. CFC legislation and other anti-abuse provisions 567
29.5. CFC legislation and tax treaties 568
29.6. CFC legislation and constitutional law/EU law 569
29.7. Improving the current rules 569
29.8. Outlook: The future of CFC legislation 571

Chapter 30: Controlled Foreign Company Legislation in Portugal 573
Ricardo da Palma Borges and Marta Carmo
30.1. Characteristics of the Portuguese CFC legislation 573
30.1.1. Historical developments and object and purpose of the CFC legislation 573
30.1.2. Taxable event 575
30.1.2.1. Shareholder 575
30.1.2.2. Foreign entities 577
30.1.2.3. Control 577
30.1.2.4. Definition of “low taxation” 577
30.1.2.5. Type of income covered 580
30.1.2.6. Other criteria 580
30.1.2.7. Exceptions 580
30.1.3. Consequences 582
30.1.3.1. Subject to tax 582
30.1.3.2. Attributed income 582
30.1.3.3. Concept or nature 584
30.1.3.4. Relevance of taxation in the CFC state and other states 585
30.1.3.5. Avoidance of double taxation (at a future distribution or transfer for a consideration) 585
30.1.3.6. Losses 587
30.2. Implementation of Articles 7 and 8 of the ATAD 587
30.3. Special CFC rules 587
30.4. CFC legislation and other anti-abuse provisions 587
30.5. CFC legislation and tax treaties 589
30.6. CFC legislation and constitutional law/EU law 591
30.7. Improving the current rules 593
30.7.1. Attributed income determined under the IRC Code and compliance costs 593
30.7.2. “Income from invoicing companies that earn commercial and services income derived from goods and services purchased from and sold to related entities … and that add no or little economic value” 593
30.7.3. “Income derived by financial assets” vs “capital income” 597
30.7.4. Madeira Free Zone loophole 598
30.7.5. Policy and the non-habitual resident regime 599
30.8. Outlook: The future of CFC legislation 600

Chapter 31: Controlled Foreign Company Legislation in Romania 601
Ioana-Felicia Rosca
31.1. Characteristics of CFC legislation under Romanian law 601
31.1.1. Policy considerations 601
31.1.2. Attribution of income from the CFC to the shareholder 602
31.1.3. Definition of CFC 603
31.1.4. Exclusions of CFC 605
31.1.5. Definition of CFC income 606
31.1.6. Computation of CFC income at the level of the shareholder 607
31.1.7. Rules to prevent double taxation 608
31.2. Implementation of Articles 7 and 8 of the ATAD 609
31.2.1. Transposition of the CFC rule under the ATAD into Romanian Fiscal Code 609
31.2.2. Mechanism of the CFC rule opted by Romania 611
31.2.3. Minimum standard 612
31.3. Special CFC rules 613
31.3.1. Absence of special CFC rules under Romanian law 613
31.3.2. Application of CFC rule to taxpayers qualifying for turnover taxation 613
31.4. CFC legislation and other anti-abuse provisions 614
31.4.1. GAAR under Romanian Law 614
31.4.2. Relationship between GAAR and CFC rule 615
31.5. CFC legislation and tax treaties 616
31.5.1. Tax treaties application under Romanian law 616
31.5.2. Relationship between CFC rule and tax treaty provisions 617
31.6. CFC legislation and constitutional law/EU law 618
31.6.1. Constitutional limits on implementation of CFC legislation 618
31.6.2. Possible conflicts between CFC rule and primary EU law 619
31.7. Improving the current rules 620
31.7.1. Shortcomings of the current CFC rule under Romanian legislation 620
31.7.2. Recommendations for improvement of the current CFC rule 623
31.8. Outlook: The future of CFC legislation 624
31.8.1. Development of the CFC rules in future 624
31.8.2. Administrative efforts to make CFC rule effective 625
31.8.3. Concluding remarks 625

Chapter 32: Controlled Foreign Company Legislation in Russia 627
Nikolai Milogolov and Kermen Tsagan-Mandzhieva
32.1. Characteristics of CFC legislation in the Russian Federation 627
32.1.1. Attribution of CFC income 629
32.1.2. Defining a CFC 630
31.1.3. Defining CFC income 633
32.1.4. Computing CFC income 635
32.1.5. Rules to prevent and avoid double taxation 636
32.2. Implementation of Articles 7 and 8 of the Anti-Tax Avoidance Directive 637
32.3. Special CFC rules 637
32.4. CFC Legislation and other anti-abuse provisions 638
32.5. CFC legislation and tax treaties 639
32.6. CFC legislation and constitutional law/EU law 639
32.7. Improving the current rules 640
32.8. Outlook: The future of CFC legislation 642

Chapter 33: Controlled Foreign Company Legislation in the Slovak Republic 645
Matej Kačaljak and Andrea Koroncziová
33.1. Characteristics of Slovak CFC legislation 645
33.2. Implementation of Articles 7 and 8 of the ATAD 649
33.3. Special CFC rules 650
33.4. CFC Legislation and other anti-abuse provisions 652
33.5. CFC legislation and tax treaties 654
33.6. CFC legislation and constitutional law /EU law 656
33.7. Improving the current rules 657
33.8. Outlook: The future of CFC legislation 658

Chapter 34: Controlled Foreign Company Legislation in South Africa 659
Jennifer Roeleveld and Tracy Johnson
34.1. Characteristics of South African CFC legislation 659
34.1.1. Introduction 659
34.1.2. Policy considerations: A brief history 659
34.1.3. Rules for defining a CFC 664
34.1.4. Definition of CFC income 665
34.1.5. CFC exemption and threshold requirements 666
34.1.6. Rules for computing income 669
34.1.7. Rules for attributing income 669
34.1.8. Rules to prevent or eliminate double taxation 670
34.2. Implementation of Articles 7 and 8 of the Anti-Tax-Avoidance Directive 671
34.3. Special CFC rules 671
34.4. CFC legislation and other anti-abuse provisions 672
34.5. CFC legislation and tax treaties 672
34.6. CFC legislation and constitutional law/EU law 673
34.7. Improving the current rules 673
34.7.1. Area for improvement: High tax rate exemption 674
34.7.2. Area for improvement: FBE exemption 674
34.7.3. Area for improvement: Rebate for foreign taxes paid 676
34.8. Outlook: The future of CFC legislation 677

Chapter 35: Controlled Foreign Company Legislation in the Republic of Korea 679
Ji-Hyun Yoon and Ji-Heon Jin
35.1. Characteristics of Korean CFC legislation 679
35.1.1. Introduction and definition of CFC 679
35.1.1.1. Requirement of low-tax jurisdiction 679
35.1.1.2. “Control” requirement 680
31.1.1.3. Scope of shareholders who are taxed 681
35.1.2. Scope of CFC income 682
35.1.2.1. De minimis rule 684
35.1.3. Deemed dividend approach 684
35.1.4. Relief for double taxation 685
35.1.5. Miscellaneous 686
35.1.5.1. Problem of low-tier subsidiaries 686
35.1.5.2. In the case of lack of information from the resident shareholder’s side 686
35.1.6. Policy considerations behind CFC legislation 686
35.2. Special CFC rules 688
35.3. CFC legislation and other anti-abuse provisions 688
35.4. CFC legislation and tax treaties 690
35.5. CFC legislation and constitutional law 690
35.6. Improving the current rules 690
35.7. Outlook: The future of CFC legislation 692

Chapter 36: Controlled Foreign Company Legislation in Spain 695
José Manuel Almudí Cid
36.1. Characteristics of Spanish CFC Legislation 695
36.2. Implementation of Articles 7 and 8 of the ATAD 701
36.2.1. Definition and object of control 701
36.2.2. Taxation of the controlled foreign company 703
36.2.3. Tainted income 704
36.2.3.1. Tainted income according to its legal nature 704
36.2.3.2. Tainted income according to the capacity and means of the foreign entity 708
36.2.4. Limits to inclusion of tainted income in taxable base of shareholder 711
36.2.5. Correction of double taxation 713
36.2.6. Temporal issues 715
36.3. Special CFC rules 716
36.4. CFC legislation and other anti-abuse provisions 716
36.5. CFC legislation and tax treaties 716
36.5.1. Application of tax treaties to CFC rules 716
36.5.2. Distributive rules – Articles 6-21 Model Convention for Income Tax 718
36.5.2.1. Business profits according to Article 7 OECD Model 718
36.5.2.2. Dividends according to Article 10 OECD Model 719
36.5.2.3. Other income according to Article 21 OECD Model 720
36.5.3. Exemption method, tax sparing and the MLI saving clause 720
36.6. CFC legislation and constitutional law/EU law 721
36.6.1. Constitutional law 721
36.6.2. EU law 722
36.7. Improving the current rules 725
36.8. Outlook: The future of CFC legislation 726

Chapter 37: Controlled Foreign Company Legislation in Sweden 727
Björn Westberg
37.1. Characteristics of Swedish CFC legislation 727
37.1.1. The main policy considerations regarding CFC legislation in Sweden 727
37.1.2. Income attribution from the CFC to the shareholder 730
37.1.3. Definition of a CFC 730
37.1.3.1. The development and content of the Swedish CFC legislation 730
37.1.3.2. Basic definitions 731
37.1.3.3. White lists 732
37.1.4. Definition of CFC income 734
37.1.5. Computation of CFC income 735
37.1.6. The rules to prevent or eliminate double taxation 736
37.1.7. Treatment of income earned by lower-tier subsidiaries 738
37.1.8. Application of CFC legislation to corporations and individuals as shareholders 739
37.2. Implementation of Articles 7 and 8 of the ATAD 739
37.3. Special CFC rules 740
37.4. CFC legislation and other anti-abuse provisions 741
37.5. The relationship between CFC legislation and tax treaties 742
37.6. CFC legislation and constitutional law/EU law 742
37.7. Improving the current rules 743
37.8. Outlook: The future of CFC legislation 744
37.8.1. EU law 744
37.8.2. White, grey or blacklists 745
37.8.3. Corporate tax rates 745
37.8.4. Not only a general anti-abuse rule 745

Chapter 38: Controlled Foreign Company Legislation in Chinese Taipei, Taiwan 747
Yuan-Chun Martin Lan
38.1. Characteristics of CFC legislation in Chinese Taipei 747
38.1.1. Income attributed 749
38.1.2. Define a CFC 749
38.1.3. Define CFC income 750
38.1.4. Compute CFC income 752
38.1.5. Eliminate double taxation 753
38.1.6. Lower-tier subsidiaries 754
38.1.7. CFC legislation to individuals 754
38.2. Implementation of Articles 7 and 8 of the ATAD 755
38.3. Special CFC rules 755
38.4. CFC legislation and other anti-abuse provisions 755
38.5. CFC legislation and tax treaties 757
38.6. CFC legislation and constitutional law/EU law 757
38.7. Improving the current rules 758
38.8. Outlook: The future of CFC legislation 758
Appendix 759

Chapter 39: Controlled Foreign Company Legislation in Turkey 761
Emrah Ferhatoğlu
39.1. Characteristics of CFC legislation in Turkey 761
39.1.1. Definition of CFC 762
39.1.1.1. Foreign entities covered by the CFC rules 762
39.1.1.2. Control requirements 763
39.1.1.2.1. Shareholder 763
39.1.1.2.2. Control threshold and timing 764
39.1.1.2.3. Passive income 765
39.1.1.2.4. Tax burden of foreign subsidiary 766
39.1.1.2.5. De minimis test 767
39.1.2. Defining CFC income 767
39.1.3. Attribution of CFC income to shareholder 768
39.1.4. Prevent and eliminate double taxation 769
39.2. Implementation of Articles 7 and 8 of theAnti-Tax Avoidance Directive 770
39.3. Special CFC rules 770
39.4. CFC legislation and other anti-abuse provisions 770
39.5. CFC legislation and tax treaties 771
39.5.1. Taxation of CFC profits under DTCs before distribution of CFC profits 772
39.5.2. Taxation of CFC profits under DTCs after distribution of CFC profits 772
39.6. CFC legislation and constitutional law/EU law 773
39.6.1. Principle of equality in tax law 774
39.6.2. Other constitutional limits 775
39.7. Improving the current rules 776
39.7.1. Interaction between CFC legislation and transfer pricing rules 776
39.7.2. Interaction between CFC legislation and participation exemption 777
39.7.3. Lack of any rules regarding outbound investments 777
39.8. Outlook: The future of CFC legislation 778

Chapter 40: Controlled Foreign Company Legislation in Ukraine 779
Svitlana Buriak
40.1. Main characteristics of the CFC Regulations 779
40.1.1. Policy considerations 779
40.1.2. Rules for defining a CFC and a controlling person 781
40.1.2.1. What foreign entity can be regarded as a CFC? 781
40.1.2.2. Who can be regarded as a controlling person? 781
40.1.2.3. Legal control 782
40.1.2.4. De facto and economic control 783
40.1.3. Attribution of income from CFC to shareholders 784
40.2. Implementation of Articles 7 and 8 of the Anti-Tax Avoidance Directive 785
40.3. Special CFC rules 787
40.3.1. Exemptions from taxation of profits of a CFC 787
40.3.2. Special rules for adjusting the CFC income 788
40.4. CFC legislation and other anti-abuse provisions 789
40.4.1. Interaction between CFC and transfer pricing rules 789
40.4.2. Interaction between the CFC rules and the domestic GAAR 791
40.5. CFC legislation and tax treaties 791
40.6. CFC legislation and constitutional law 793
40.7. Improving the current rules 794
40.8. Outlook: The future of the CFC legislation 795

Chapter 41: Controlled Foreign Company Legislation in the United Kingdom 797
Paul Bowes
41.1. Characteristics of UK CFC legislation 797
41.1.1. Outline of UK CFC provisions 797
41.1.2. Entity-level exemptions 801
41.1.2.1. The “tax exemption” exemption 802
41.1.2.2. The excluded territories exemption 802
41.1.2.3. The low profits exemption 802
41.1.2.4. The low profit margin exemption 803
41.1.2.5. The exempt period exemption 803
41.1.3. The CFC gateway charge 804
41.1.3.1. Profits attributable to UK activities 804
41.1.3.2. Non-trading finance profits 805
41.1.3.3. Trading finance profits 807
41.1.3.4. Captive insurance profits 808
41.1.3.5. Solo-consolidation 808
41.1.4. Finance companies and partial/full exemption regime 809
41.1.5. The meaning of control for UK CFC purposes 813
41.1.6. Tax credits available against tax on CFC chargeable profits 815
41.2. Implementation of Articles 7 and 8 of ATAD I 816
41.3. Special CFC rules 817
41.4. CFC legislation and other anti-abuse provisions 817
41.4.1. Diverted profits tax and diverted profits generally 817
41.4.2. Offshore receipts in respect of intangible property 821
41.4.3. The operation of the UK GAAR 823
41.5. UK CFC legislation and tax treaties 824
41.6. UK CFC legislation and constitutional law/EU law 825
41.7. Improving the current rules 828
41.8. Outlook: The future of CFC legislation 829

Chapter 42: Controlled Foreign Company Legislation
in the United States 833
Yariv Brauner and Christine A. Davis
42.1. Characteristics of US CFC legislation 833
42.1.1. Subpart F 834
42.1.2. Definition of a CFC 836
42.1.3. Subpart F income 838
42.1.4. Calculation of Subpart F income 841
42.1.5. Section 956 – Investments of earnings in US property 843
42.1.6. Special rules 844
42.2. Implementation of Articles 7 and 8 of the
Anti-Tax Avoidance Directive 845
42.3. Special anti-deferral rules 845
42.3.1. PFIC 846
42.3.1.1. PFIC defined 846
42.3.1.2. Tax consequences of PFIC designation 846
42.3.1.3. PFIC and CFC 847
42.3.2. Global intangible low-taxed income (GILTI) 847
42.3.2.1. FDII 849
42.4. CFC legislation and other anti-abuse provisions 850
42.5. CFC legislation and tax treaties 854
42.6. CFC legislation and constitutional law/EU law 855
42.7. Improving the current rules 855
42.8. Outlook: The future of CFC legislation 856

Chapter 43: Controlled Foreign Company Legislation in Uruguay 859
Andrea Laura Riccardi Sacchi
43.1. Characteristics of Uruguayan controlled foreign company legislation 859
43.1.1. Preliminary considerations to our analysis 859
43.1.2. Tax policy considerations 861
43.1.3. Defining low- or no-tax entities 862
43.1.4. Introducing a deemed dividend approach 864
43.1.5. Establishing exceptions 865
43.1.6. Type of income 865
43.1.7. Determining the income assigned as dividend 866
43.1.8. Elimination of double taxation 867
43.2. Implementation of Articles 7 and 8 of the Anti-Tax Avoidance Directive 868
43.3. Special CFC rules 868
43.4. CFC legislation and other anti-abuse provisions 869
43.5. CFC legislation and tax treaties 870
43.6. CFC legislation and constitutional law/EU law 871
43.7. Improving the current rules 871
43.8. Outlook: The future of CFC legislation 872

Annex 874
List of Contributors 875
Editors 875
Authors 876