CFC rules prior to the Beps Project
Mar 12, 2024 5:55:29 GMT
Post by account_disabled on Mar 12, 2024 5:55:29 GMT
Without going into the specifics of indirect control and joint control it is observed that the legislator essentially maintained the definition of control as a function of the right to vote in the Corporation Law article and imported the definition of control as a function of the right over capital and assets of the CFC-PJ rules article . On the other hand he added another element to the definition of control the right to profit.
It is known that this third element as an express alternative to the other two was recommended by the OECD in the Final Report of Action of the Beps Project. So much so that tend to present only the right to vote and the right to capital and assets in their definition of control while CFC rules that come after it tend to expressly also contain the right to the realization of profits in its definition of control — e.g. European Union Atad article entitlement-to-profits test . It is conjectured that this occurred as a countermeasure to arrangements that could dissociate the right to the realization of profits from other rights arising from the ownership of shareholdings but the OECD is not absolutely clear in this regard.
Ideally after the control is set up the amount of foreign profits to be included in the domestic tax base is calculated as a function of the amount of dividends the domestic person would Phone Number Data receive in a hypothetical distribution — e.g. U.S. Subpart F Rules The. Therefore the right to the realization of profits is an element that traditionally makes up not the definition of control itself but the method of calculating proportional inclusion for the purposes of CFC rules.
It is recognized that with this element being both in the definition of control and in the calculation of proportional inclusion as appears to be the current trend in CFC rules the risk of double taxation tends to zero. This is because this second is effectively the bottleneck in combating double taxation in this specific context.
Fortuitously this is how the CFC-PF rules were designed whose proportional inclusion rule in article III uses the term “proportion of the individual's participation in the profits of the controlled company directly or indirectly abroad” . The wording could be better however because it is assumed that there was no decision to pay dividends meaning that the tax resident individual from a corporate point of view has a mere potential share in the profits.
In any case this wording already represents progress in relation to the CFC-PJ rules. This is because in the caput of article and in other legal provisions they use the term “proportion of their participation in each controlled company direct or indirect” without reference to profits in a hypothetical distribution. The term “participation” in this case refers to the ownership of a corporate interest the nominal percentage of which does not necessarily correspond to the amount of profits proportionally allocable to the domestic person in a hypothetical distribution.
It is known that this third element as an express alternative to the other two was recommended by the OECD in the Final Report of Action of the Beps Project. So much so that tend to present only the right to vote and the right to capital and assets in their definition of control while CFC rules that come after it tend to expressly also contain the right to the realization of profits in its definition of control — e.g. European Union Atad article entitlement-to-profits test . It is conjectured that this occurred as a countermeasure to arrangements that could dissociate the right to the realization of profits from other rights arising from the ownership of shareholdings but the OECD is not absolutely clear in this regard.
Ideally after the control is set up the amount of foreign profits to be included in the domestic tax base is calculated as a function of the amount of dividends the domestic person would Phone Number Data receive in a hypothetical distribution — e.g. U.S. Subpart F Rules The. Therefore the right to the realization of profits is an element that traditionally makes up not the definition of control itself but the method of calculating proportional inclusion for the purposes of CFC rules.
It is recognized that with this element being both in the definition of control and in the calculation of proportional inclusion as appears to be the current trend in CFC rules the risk of double taxation tends to zero. This is because this second is effectively the bottleneck in combating double taxation in this specific context.
Fortuitously this is how the CFC-PF rules were designed whose proportional inclusion rule in article III uses the term “proportion of the individual's participation in the profits of the controlled company directly or indirectly abroad” . The wording could be better however because it is assumed that there was no decision to pay dividends meaning that the tax resident individual from a corporate point of view has a mere potential share in the profits.
In any case this wording already represents progress in relation to the CFC-PJ rules. This is because in the caput of article and in other legal provisions they use the term “proportion of their participation in each controlled company direct or indirect” without reference to profits in a hypothetical distribution. The term “participation” in this case refers to the ownership of a corporate interest the nominal percentage of which does not necessarily correspond to the amount of profits proportionally allocable to the domestic person in a hypothetical distribution.