CFC (Controlled Foreign Corporation)

A Controlled Foreign Corporation is a foreign company in which citizens or residents of a high-tax country hold a controlling interest, triggering anti-avoidance rules that attribute certain undistributed profits of the foreign company to the domestic shareholders for tax purposes. CFC rules exist in the US, UK, Germany, and many other countries to prevent the deferral of tax on passive income routed through low-tax jurisdictions. The US CFC rules are among the most complex, with provisions such as Subpart F income and the GILTI regime. Substance requirements have become increasingly important in managing CFC exposure.