Following up on the Sub-year offshore company, I present the accrued deficit CFC company.
Similarly to how profits have different values based on the CIT in a given country, so does accrued deficits.
When a company becomes a CFC company for a given owner, some accrued deficits might be taken into account.
For example, assume a country with 3% CIT. Person A creates two companies, bull and bear. The bull company takes a 100x bull position on btc, the bear company takes a 100x bear position on btc. One company will have lots of profits, the other will have a deficit.
Let's say the bull company has a profit of $100. The value of that profit is $97, while the value of the $100 deficit in bear is $3.
Now A sells the bear company to B who lives in a jurisdiction with 30% CIT for $17. B takes the company and makes $100 in consulting fees.
Bear is a CFC company for B, but the CFC rules, in order to not be too draconian for international business, allows for deduction of deficits during the last 3 years. B now pays zero CIT for bear as the accrued deficit was $100. This saves B $30 in CIT while paying only $17 for this. B is thus saving $13.
A also made a profit, $17 - $3 = $14 by selling bear while only having to pay $3 CIT in bull.
Similarly to how profits have different values based on the CIT in a given country, so does accrued deficits.
When a company becomes a CFC company for a given owner, some accrued deficits might be taken into account.
For example, assume a country with 3% CIT. Person A creates two companies, bull and bear. The bull company takes a 100x bull position on btc, the bear company takes a 100x bear position on btc. One company will have lots of profits, the other will have a deficit.
Let's say the bull company has a profit of $100. The value of that profit is $97, while the value of the $100 deficit in bear is $3.
Now A sells the bear company to B who lives in a jurisdiction with 30% CIT for $17. B takes the company and makes $100 in consulting fees.
Bear is a CFC company for B, but the CFC rules, in order to not be too draconian for international business, allows for deduction of deficits during the last 3 years. B now pays zero CIT for bear as the accrued deficit was $100. This saves B $30 in CIT while paying only $17 for this. B is thus saving $13.
A also made a profit, $17 - $3 = $14 by selling bear while only having to pay $3 CIT in bull.