Controlled Foreign Corporation - CFC

AAA

DEFINITION of 'Controlled Foreign Corporation - CFC'

A corporate entity that is registered and conducts business in a different jurisdiction or country than the residency of the controlling owners. Control of the foreign company is defined, in the U.S., according to the percentage of shares owned by U.S. citizens.

Controlled foreign corporation (CFC) laws work alongside tax treaties to dictate how taxpayers declare their foreign earnings. A CFC is advantageous for companies when the cost of setting up a business, foreign branches or partnerships in a foreign country is lower even after the tax implications, or when the global exposure could help the business grow.

INVESTOPEDIA EXPLAINS 'Controlled Foreign Corporation - CFC'

The CFC structure was created to help prevent tax evasion, which was done by setting up offshore companies in jurisdictions with little or no tax. Each country has its own CFC laws, but most are similar in that they tend to target individuals over multinational corporations when it comes to how they are taxed. For this reason, having a company qualify as independent will exempt it from CFC regulations.

Countries differ in how they define the independence of a company. The determination can be based on how many individuals have a controlling interest in the company, as well as the percentage they control. For example, minimums can range from fewer than 10 to over 100 people, or 50% of voting shares, or 10% of the total outstanding shares.

RELATED TERMS
  1. Corporation

    A legal entity that is separate and distinct from its owners. ...
  2. Foreign

    1. A non-U.S. company with securities trading on the North American ...
  3. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at ...
  4. Tax Evasion

    An illegal practice where a person, organization or corporation ...
  5. Tax Haven

    A country that offers foreign individuals and businesses little ...
  6. Tax Shelter

    A legal method of minimizing or decreasing an investor's taxable ...
Related Articles
  1. Global Trade And The Currency Market
    Forex Education

    Global Trade And The Currency Market

  2. Give Your Taxes Some Credit
    Taxes

    Give Your Taxes Some Credit

  3. Offset Risk Without Investing Abroad
    Options & Futures

    Offset Risk Without Investing Abroad

  4. What risks do organizations face when ...
    Options & Futures

    What risks do organizations face when ...

Hot Definitions
  1. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
  2. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
  3. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years ...
  4. Call Risk

    The risk, faced by a holder of a callable bond, that a bond issuer will take advantage of the callable bond feature and redeem ...
  5. Parity Price

    When the price of an asset is directly linked to another price. Examples of parity price are: 1. Convertibles - the price ...
  6. Earnings Multiplier

    An adjustment made to a company's P/E ratio that takes into account current interest rates. The earnings multiplier is used ...
Trading Center