Wednesday, 8 April 2015

Multinationals will be concerned about additional complexity in controlled foreign company proposals

Multinational enterprises (MNEs) will be concerned about the Base Erosion and Profit Shifting (BEPS) discussion draft on controlled foreign company (CFC) rules published over the Easter weekend.  This discussion draft relates to Action 3 of the BEPS Action Plan as agreed by the Organisation for Economic Cooperation and Development (OECD) with the G20 countries. The proposals are complex and, in practice, the difficulties are likely to be worsened by the degree of latitude accorded to states in applying or varying the proposed approach.

The OECD notes that many countries already have CFC rules. It suggests that these rules do not always counter BEPS in a comprehensive manner though they could reduce the incentive to shift profits to a third, low-tax country. Harsher CFC rules will in principle lead to inclusion of more income in the residence country of the ultimate parent but a high level proposal to add a secondary form of taxation in another jurisdiction would add further complexity if it is taken forward.

This discussion draft considers all the constituent elements of CFC rules and breaks them down into the building blocks necessary for effective CFC rules.

Source & more info: PwC