What are Controlled Foreign Corporations (CFCs)?

A Controlled Foreign Corporation (CFC) is an international tax law concept that affects businesses operating in the state of New York. CFCs are foreign corporations that are controlled by U.S. shareholders. In other words, CFCs are foreign companies that are partly or completely owned by U.S. citizens or entities. Under international tax law, CFCs must pay taxes to the U.S. on their profits, even if those profits were earned outside of the United States. CFCs are subject to a number of restrictions, including a requirement that U.S. shareholders file specific tax forms whenever a CFC earns a dividend or any other type of income. CFCs have a number of benefits for U.S. shareholders, including the ability to defer paying taxes on income earned outside of the United States. Additionally, U.S. corporations that have a controlling stake in CFCs may be able to benefit from tax credits and other incentives. However, CFCs must also adhere to a number of rules and regulations set forth by the Internal Revenue Service (IRS). In particular, CFCs must conform to rules about thin capitalization, avoiding abroad transactions, and repatriating upstream dividends. Failure to follow these rules can result in penalties and increased tax liability.

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What are Controlled Foreign Corporations (CFCs)?

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