CFC Question

[keildakota]

Hello,

I wondered how it would work if there are multiple partners in a business and, for example, someone from this group is subject to CFC rules.

Let's say we have the following setup:

1. Holding company in some jurisdiction without CFC rules (limited liability)
   1. Ownership as follows:
      1. 40% owned by "Jack" from Sweden
      2. 30% owned by "John" from Singapore
      3. 30% owned by "Bob" from Switzerland
2. Holding company owns the main business, that's based in the Cayman Islands
   1. 60% of profits are paid as dividends to parent company annually

Now for the actual question: How would CFC work in this situation (as jack is subject to CFC, but the other two are not)? How would this affect the holding company?

Any thoughts?

 

[fshore]

CFC generally is not on the company but on the owner. So Jack would pay the extra taxes independently of how the other owners are taxed.

 

[keildakota]

Hmm, I thought it may be something along those lines but if it could on the company somehow and if it was, how would this work?

 

[fshore]

Jack will have to prepare accounts (accounting) for the CFC company using Swedish tax rules. Then he'll pay taxes on 40% of the company's profits.
In your example where there is a holding company he has to do this for both companies.

Note that if Jack actually runs some of the business from Sweden then the company might be tax resident in Sweden, or have a PE there. If it's tax resident in Sweden then CFC rules don't apply.

 

[keildakota]

I see, that's what I assumed nevertheless I appreciate the help 🙂