How do large US firms get around CFC rules of IRS?

hernanday

Active Member
I'm not American but I've been reading into this issue over the last few weeks, and I can't seem to find any explanation, not even in the legislation.
The Controlled Foreign Companies rule basically says if American citizens control 10% (use to be around 50%) of the firm, they will be treated as an American firm for tax purposes.
That is they will be made to pay taxes in USA if they have American owners even though you are Headquarter in some tax haven.

How did/do these companies like starbucks and google, and apple where all their top executives are US citizens and their largest shareholders are all American and American firms located/ live in USA, how come they don't have the IRS chasing them just EU tax authorities. What am I missing in this picture? Are/were they using some loophole in the double taxation treaties?
 

GiGoGo

I make things happen
Mentor Group Gold
How did/do these companies like starbucks and google, and apple where all their top executives are US citizens and their largest shareholders are all American and American firms located/ live in USA, how come they don't have the IRS chasing them just EU tax authorities.
 

hernanday

Active Member
Yes, I understand that, but how does it get around the CFC rules of IRS. I'm not sure if I'm missing something in this.
You have Starbucks lets say with its American owner/ceo etc. They basically pay the royalties and profits over to the netherlands then the uk into subsidiaries via transfer pricing. Then to a tax free or low jurisidiction. The CFC rules as I understand it, don't care about this, because they will treat where ever the profit ends up as an American firm in USA for the purposes of tax. That is your profits in Ireland, the American government says o they made $100 million, that Irish HQ or subsidiary is owned by Starbucks USA or it is owned by Americans so under CFC we are treating it for tax purposes as an American firm.
 

hernanday

Active Member
Because they really have engineers and physical offices

Having looked further, and with your article, tell me if my understanding is correct.
Despite CFC rules, if you have a foreign subsidiary that appears to be an active business with real employees, you can basically defer/ not pay taxes on its profits until you bring those tax dollars back to USA? Despite it still being owned by American?

There seems to be something about indefinitely reinvested foreign earnings. What is the standard to which they consider those earnings to be reinvested though?
 

xzars

Entrepreneur
@mange38 - UK income is funneled through Ireland. And Ireland too gets a lot of jobs! It's not in their interest to make life difficult for those who feed them.

With that said, Google and anyone with 8B of tax base at stake probably has a legal routine in place, bolstered with an advance tax ruling which outlines detailed compliance steps:

"Half of the squad of directors must squat and take a selfie by the 666 PO box and submit it to the Irish tax authorities by the end of March as proof of top management taking place in Bermuda!" smi(&%
 

Admin

Forum Moderator
Staff member
Elite Member
Trump's tax reformed changed this, so that they have to pay tax on foreign subsidiaries now. That's why for example Google is moving it's IP back to USA.
So let's hope it won't be changed at the next election. I believe hidden money is already floating in the wrong pockets by now.
 
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