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CFC Rules Around the World

3 min readBy: Sebastian Dueñas

The Organisation for Economic Co-operation and Development (OECD’s) search for a solution to taxation of the digitalized economy has led it to consider a global minimum taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. as part of a broader anti-base erosion proposal.[1] Because a minimum tax could be based on the structure of existing controlled foreign corporation rules (CFC rules), a review of countries’ CFC rules is timely.

In general, these rules target multinational companies’ ability to shift passive or other types of mobile income to low-taxed jurisdictions. While to some degree these rules follow a similar template around the world, in other respects they vary by jurisdiction. A review of these similarities and differences is important as international organizations and individual countries consider expanding these rules to better address challenges of multinational tax avoidance in the 21st century.

One question that may be considered as the OECD evaluates recommendations for a minimum tax is the extent to which such a regime may be based on the reforms adopted by the United States in 2017. In the Tax Cuts and Jobs Act (TCJA), the United States enacted a provision called the Global Intangible Low-Taxed Income (GILTI, Section 951A). [2] This rule, while built on the existing Subpart F edifice, departs from that structure in important respects. It is questionable whether the mechanism by which it is imposed means that it should properly be called a minimum tax or simply an expansion of a CFC regime. The mechanics of the U.S. GILTI regime and its function as a minimum tax will be important to examine as the rest of the world considers whether to adopt a similar—or different—minimum tax, or to adopt one at all.

This paper undertakes a review of CFC rules around the world as a contribution to the global discussion over the possible expansion of existing anti-base erosion CFC regimes or the potential adoption of a minimum tax. It is organized in six parts. Part I reviews the history of adoption of CFC rules around the world (focusing on the countries identified below) including the initial adoption of subpart F by the United States in 1962. Part II discusses efforts and proposals to change U.S. taxation in the past 20 years that were the origins of the 2017 reform to the tax code. Part III explains other recent efforts made to address anti-base erosion concerns through CFC rules by the OECD and the European Commission. Part IV discusses the U.S. Subpart F rules in greater detail and goes on to explain the changes introduced by the 2017 tax reform (TCJA).[3] Part V analyzes the different approaches taken to CFC rules in several countries including Japan, France, Germany, the United Kingdom, Colombia, the Netherlands, China, and Spain. All the countries selected have CFC rules in effect with some of them having different economic, legal, and political ramifications. With this selection of countries, it is possible to analyze the necessity of having the rules from different practical perspectives. Part VI concludes with a discussion of the extent to which the need for CFC rules in developed and developing countries should be based on their individual economic situations.

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* University of Florida visiting scholar.

[1] OECD, “Programme of Work to Develop a Consensus Solution to the Tax Challenges Arising from the Digitalisation of the Economy,” May 31, 2019,

[2] Unless otherwise noted, all “section” references are to the Internal Revenue Code of 1986, as amended.

[3] The official name is “The Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018.” Pub. L. No. 115–97, 131 Stat. 2054 [hereinafter the Tax Cuts and Jobs Act, or the TCJA].