The Importance of Determining Accurate Earnings and Profits of Foreign Corporations for U.S. Tax Compliance Purposes
By Anthony Diosdi When we think about international tax or cross border transactions, we think about the controlled foreign corporation or CFC rules. We also consider subpart F income or global intangible low-taxed income (“GILTI”) planning. Unfortunately, many international tax professionals do not give much consideration to the “earnings and profits” (“E&P”) of a controlled foreign corporation or CFC. The importance of E&P in international tax should not be ignored. Not only is E&P the foundation of cross-border income inclusions, recent changes to the rules governing U.S. international tax compliance make having an accurate E&P more important now than ever. The precise definition of the term E&P is nowhere to be found in the Internal Revenue Code or its regulations. The function of E&P, however, is clear: it is a…