Subpart F, CFCS, GILTI, And PFICS

Learning Objectives

Upon successful completion of this course, participants will be able:

• To describe and classify an entity as a CFC.
• To analyze transactions to determine whether the transaction produces foreign base company income.
• To discuss the components of GILTI.
• To calculate GILTI.
• To identify and apply the test for classifying an entity as a PFIC.
• To describe the inclusion mechanisms for U.S. shareholders of a PFIC.

Course Description

Subpart F has been the backbone of United States international tax law since its enactment in 1962 and remains so today even after the changes provided by the Tax Cuts and Jobs Act.  Subpart F was originally designed to combat deferral and the movement of operations abroad to low-tax and zero-tax jurisdictions.  Subpart F, the CFC rules, GILTI, and PFICs are all responses to the challenges posed by globalization and the free movement of capital.  Planning around and legally avoiding Subpart F income inclusions is a fundamental part of international tax planning for any United States corporation with significant international subsidiaries and operations.

This online IRS approved CE course will also discuss how the core provisions of Subpart F govern the taxation of Controlled Foreign Corporations (CFCs).  Controlled Foreign Corporations are foreign corporations (corporations incorporated outside of the United States) that are owned more than 50% (by vote or value) by U.S. shareholders (U.S. persons who own 10% or more of the corporation’s stock).  Subpart F provides special rules in the form of the Foreign Base Company Income provisions that tax income earned by the CFC where the CFC appears to be more of an economic and business intermediary rather than a substantial participant.

As a part of the Tax Cuts and Jobs Act of 2017, Congress enacted a new tax on Global Intangible Low Taxed Income (GILTI).  GILTI operates as a residual backstop for the taxation of CFCs.  GILTI applies to active income of CFCs that is not subject to Subpart F but is deemed to be in excess of a “normal” return on tangible assets.  It is not just about intangible assets and a taxpayer can have relatively few intangible assets and still be subject to GILTI.  Unlike the CFC rules, GILTI is earned by U.S. shareholders and not by the CFC itself and the inclusion rules account for all CFCs owned by a U.S. shareholder and also differ depending upon whether the U.S. shareholder is an individual or a corporation.

The rules regarding Passive Foreign Investment Companies (PFICs) were designed to target “incorporated pocketbooks” of wealthy Americans.  The PFIC rules govern the ownership by any American of interests in a foreign corporation for which 75% or more of its gross income is passive income or 50% or more of its assets are held for the production of passive income.

Key topics covered in this online CPE/CE webinar:

• Defining U.S. shareholder for purposes of the CFC rules
• Defining and classifying an entity as a controlled foreign corporation (CFC)
• Categories of foreign base company income: foreign personal holding company income, foreign base company sales income, foreign base company services income.
• Allocation of deductions to foreign base company income.
• Determining Global Intangible Low-Taxed Income (GILTI).
• Classification of a personal foreign investment company (PFIC).
• Section 1291 Tax and Interest Regime.
• Section 1295 QEF Election.
• Section 1296 Mark-to-Market Regime.

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Overview

• What We'll Cover

  1 mins
• Overall Purpose of Subpart F

  10 mins
• Definition of a CFC

  24 mins
• Exceptions for Foreign Personal Holding Company Income

  37 mins
• Global Intangible Low-Taxed Income (GILTI)

  59 mins
• The Asset Test

  81 mins