BEPS Action Plan: Action 3 – Controlled foreign Foreign company Company (CFC) regimes

Although OECD Member States generally apply CFC regimes, the OECD has done little work on this area in the past. In this section we discuss the elements in OECD’s BEPS Action Plan focused on strengthening CFC rules.




2 September 2013

There are CFC regimes in all G20 member states, with the exception of four developing countries, two of which have announced an intention to adopt …

a CFC regime. The taxation of foreign income, derived directly or derived via a foreign subsidiary, is a key aspect of the fiscal policy of national governments to encourage economic growth, competitiveness and foreign investment. That is one of the main reasons why CFC rules vary so much between jurisdictions. It’s very unlikely that a common position on CFC rules can be achieved when sovereign nations have chosen such different ways to encourage economic activity. The best we are likely to see is some narrowing of practices on CFC rules.

For example, while it’s common for unrelated party passive income for example (relating to third party investments, etc.) to be subject to inclusion in amounts attributable back to the home territory, certain countries like the UK, US and Canada have an exemption for related party passive income. A proposed relaxation of Australian CFC rules to facilitate exemption for related party passive income has been deferred indefinitely. There is also continuing political debate in the US as to whether the check-the-box and ‘look through’ concessions to the CFC rules should be withdrawn.


7 August 2013

There are potential EU issues with extending CFC rules, given the Cadbury Schweppes decision that within the EU the concept can apply only to …

wholly artificial arrangements. While those outside the EU suggest change in this area should be considered, the prospect of getting agreement to a change at EU Treaty level is daunting.


19 July 2013

The comments in the Action Plan on the topic of strengthening CFC rules are very short. The Plan notes that the OECD has done no significant work …

in this area (presumably because it has been seen as a purely domestic issue). The indication is that the OECD wishes to see uniform CFC rules to counter BEPS in a more comprehensive manner. The Plan expressly refers to the positive “spill-over” effects of CFC rules due to the result that taxpayers would have a much reduced incentive to shift profits into a low tax jurisdiction.

The action point is to develop recommendations regarding the design of CFC rules. The work is due to be completed within two years.

Explore additional BEPS action plans: