BEPS Action 3 – Strengthen CFC Rules
BEPS Action 3 “Designing effective controlled foreign company rules” aims to develop recommendations regarding the design and strengthening of controlled foreign company (CFC) rules, to address concerns over the possibility of creating affiliated non-resident taxpayers and routing income of a resident enterprise through the non-resident affiliate to reduce or avoid taxation.
The Final Report on BEPS Action 3 sets out best practices (and not minimum standards) in the form of six building blocks for the design of effective CFC rules:
- Definition of a CFC;
- CFC exemptions and threshold requirements;
- Definition of income;
- Computation of income;
- Attribution of income; and
- Prevention and elimination of double taxation.
Australia’s response BEPS Action 3
The Australian CFC rules are considered stronger than the OECD standards. No action is expected.