Category Archives: CFC – Controlled Foreign Corporations

The worldwide trend of attacking the use of corporations as a way to reduce or defer taxation for individuals

Introduction – The war against corporations and the shareholders of those corporations

Corporations as entities that are separate from their shareholder/owners

As every law students knows, a corporation is a legal entity that is separate from its owner. As a legal entity that is separate from its owner, a corporation is capable of holding assets, carrying on a business and investing in a way that results in separation of the shareholder(s) from the business itself. It is a mistake to infer that the corporation’s status as a separate legal entity means that the corporation’s income will not be taxed to its shareholders.

Corporations as legal instruments of tax deferral

When corporate tax rates are lower than individual tax rates, there is incentive for individuals to earn and invest through corporations rather than to earn and invest as individuals. In other words, in certain circumstances, corporations can be used to pay less taxes.

Corporations as instruments of tax evasion

In many jurisdictions is it possible to create a Corporation and NOT disclose the identities of the beneficial owners. Because of this circumstance:

1. Corporations (as was made clear in the “Panama Papers Story”) can be used to hide income and assets for either legitimate or illegitimate reasons; and

2. Corporations can be used to avoid the attribution of income earned by the corporation to the shareholders.

Corporations and the rise of @TaxHavenUSA
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Dewees 1: The Canada U.S. tax treaty does NOT protect Canadians from U.S. tax liability but does mean that Canada will NOT assist the U.S. in collection!

There are certainly benefits to being a Canadian citizens. Perhaps Canadian citizenship is the most important line of defense against the confiscation that is OVDP.

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Russia’s new CFC rules: All #offshore profits (are deemed to) run to and through Russia

The article referenced in the above tweet from Norton Rose, provides an introduction to Russia’s CFC (“Controlled Foreign Corporation”) rules. The Russian CFC rules include both:

  • an attribution of income for purposes of taxation; and
  • penalty laden reporting requirements.

 

There are presently huge incentives for Russian high net worth individuals to to break “tax residence” with Russia and find more favorable jurisdictions. It is a “perfect storm”. These incentives include:

• The “De-offshorisation” initiative of the Russian government, including introductions of CFC rules that came into force on January 2015

• The enforcement of pre-existing rules established by Russian Federal Law Nr. 173-FZ “On Currency Regulations and Currency Control” (CCL) by amending RF Administrative Offence Code (AOC) in February 2013 (Russian FBAR coupled with “Russian citizenship reporting“)

• The adoption of the OECD’s Common Reporting Standard (CRS) in May 2016 and what that means for those with “tax residency in Russia