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US Treasury Issues Proposals For Revised CFC Rules

Mike Godfrey, Tax-News.com, Washington

03 January 2001

On December 29th, more than a year after it was first promised, the US Treasury Department finally released its comprehensive report on subpart F (sections 951-964) of the IRC. Subpart F deals with the tax treatment of passive income earned by foreign subsidiaries of US companies, and which is not remitted to the US.

The report is 226 pages, entitled 'The Deferral of Income Earned Through U.S. Controlled Foreign Corporations: A Policy Study'. Basically the law of the US, like the law of the UK and some other OECD nations, seeks to tax income held back by the remote subsidiary, as if it had been remitted, but the various nations go about this in a different way.

Said Assistant Treasury Secretary for Tax Policy Jonathon Talisman at a press conference: "The study, we believe, provides a useful framework for analyzing the antideferral rules on a going-forward basis."

The report concludes 'that the best policy for the advancement of economic welfare is for governments to impose equal taxation on domestic and foreign investment income', apparently without concerning itself about the use to which the profits are put. The UK legislation, on the other hand, distinguishes between income which is 'permanently employed' in the foreign business, and income which is held back purely for purposes of tax avoidance.

As is not unusual in the conduct of international tax policy, and has been especially marked during the Democrat administration, the US has one more time attempted to impose its fiscal sovereignty over other jurisdictions.

Talisman emphasized that the report was not a final opinion, and did not yet constitute legislative proposals. He also denied that the long delay in the report's release was politically motivated or otherwise influenced by the presidential campaign.

The two documents issued by the Treasury do not yet appear to be available on the Treasury web-site:

Treasury study on subpart F. Doc 2000-492 (226 original pages)

Treasury fact sheet on subpart F study. Doc 2000-493 (2 original pages)

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