Despite the Enactment of the 2017 Tax Cuts and Jobs Act, the High-Taxed Exception to Subpart F Income Continues to Allow CFC’s to Defer Foreign Income From U.S. Taxation
By Anthony Diosdi The Revenue Act of 1962 enacted Subpart F of the Internal Revenue Code. The 1962 Revenue Act adopted the mechanism of taxing U.S. shareholder on their pro rata shares of the controlled foreign corporation’s (“CFC”) undistributed income as if those shares of income had been distributed as dividends. In general, the purpose of subpart F is to discourage U.S. taxpayers from using foreign corporations to defer U.S. taxes by accumulating certain types of income in foreign “base” companies located in low-tax jurisdictions. Subpart F is primarily directed at two types of income: passive investment income and income derived from dealings with related corporations (i.e., using a base company to shift income away from related parties).The basic operation of the subpart F provisions is straightforward: certain U.S. taxpayers…