CFC legislation

Controlled Foreign Companies (CFC) rules provide that in certain circumstances retained earnings of a foreign company or non-incorporated structure controlled by a tax resident individual or entity will be taxed in the hands of such taxpayer in the state of its residence. Quite a number of CIS and former Soviet states have been incorporating now CFC rules into their national legislations. Not only that leads to additional tax obligations on behalf of tax-resident individuals and entities, but also it provides for obligatory tax reporting of foreign assets by the taxpayers with significant penalties for non-compliance. There may be certain rules available to have the CFC income exempt from taxation on the level of the shareholders and controlling persons. These rules however are not always detailed and may leave space for discussion.

In practical terms, that means that there is still a lot of uncertainty in interpretation of various rules and prescriptions and literally no experience and practice in application of the rules by the national tax authorities. 

MP Part provides assistance to the owners of foreign companies and non-incorporated entities in revisiting their existing holding, financing and operating structures to gain a clear understanding of their current tax and legislative position.  We support our clients with:

  • analysis and qualification of the foreign entities as CFCs for national tax purposes;
  • advisory related to specifics and consequences of the application of the CFC legislation to the clients’ existing and planned structures abroad;
  • evaluation and execution of the restructuring opportunities.

Please refer to us for an update of the CFC situation and analysis of the implication to the company or entities under your control. It might be right time to explore the restructuring potential.