TAX 9869 Lecture Notes - Lecture 50: Passive Income, Cayman Islands, W. M. Keck Observatory

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11 Aug 2020
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Categories of Subpart F
All general income of CFC is called foreign based company income
1. Foreign person holding company income
- Basically passive type: div/int/rent/royalties/of this nature = subpart F
income
- GR: If a CFC earns subpart F income USSH picks it up & pays tax
- What if CFC takes out 100 and loans it out and earn 5% interest? That
5% interest = subpart F income and USSH must pay tax on 5% of interest
income even tho CFC didnt make distr.
- What if CFC rec’d dividend (bought stock in comp & that comp paid div)?
Also subj to US tax (USSH must pick up inc as subpart f bc it is passive
income)
- Need to figure out whats div → if no E&P then maybe its not a div
from US tax perspective then no issue w/ Subpart F income
- Exception to Subpart F for dividends: dividend will not be subpart F
income if the dividend is:
- rec’d by CFC from a related person (more than 50% common
ownership) and related person is a corp organized in same
country
- as CFC and RP has a substantial part of assets used in a ToB in
that country
- EX: you have FC thats a CFC that owns 100% of another FC and
they are both organized in Netherlands. If subsidiary pays div to
CFC parent and has substantial part of assets used in ToB in
Netherlands it meets exception for subpart f income.
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