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shareholder of a CFC causes the foreign corporation to lose its CFC status by acquiring more than 50% of the foreign corporation's stock in exchange for the contribution of cash or property. According to the final conference report, the amendment was intended to narrowly target " de- control" transactions in which the foreign parent corporation of a U.S. 958(b)(4) was intended to be a partial repeal. Legislative history - including Senate floor debates - collectively indicates that the repeal of Sec. Now, stock owned (directly, indirectly, or constructively) by a foreign person may be subject to downward attribution to a U.S. This all changed in December 2017 when the TCJA repealed Sec. 958(b)(4), which prevented the rules from attributing stock owned by a non- U.S. As noted, the application of these downward attribution rules was limited in scope by former Sec. 318(a)(3) provides rules for attribution to partnerships, estates, trusts, and corporations from owners (commonly referred to as "downward attribution"). 318(a)(3) shall not be applied so as to consider a United States person as owning stock which is owned by a person who is not a United States person." Sec. 318 rules and provided that "Subparagraphs (A), (B), and (C) of Sec. 318(a)(2)(C), the phrase "10 percent" is substituted for "50 percent." citizen or resident alien individual (2) if a partnership, estate, trust, or corporation owns more than 50% of the voting power of all voting stock of a corporation, it is deemed to own all of the stock and (3) when attributing shares owned by a corporation to its shareholders under Sec. 318 rules as follows: (1) Stock owned by a nonresident alien individual will not be attributed to a U.S. 318 apply when determining stock ownership. 958(b) provides that, for purposes of certain sections and with certain modifications, the constructive ownership rules of Sec. 958(a) provides that stock owned means both stock owned directly and stock owned indirectly through foreign entities. The direct, indirect, or constructive ownership is determined using operative rules provided under Sec. person who owns (directly, indirectly, or constructively) 10% of the voting stock of a CFC. 957 as a foreign corporation that is more than 50% owned (directly, indirectly, or constructively) by U.S. shareholder, which are crucial to various international taxation regimes such as Subpart F and global intangible low- taxed income (GILTI), among others. This notably includes determinations for the definition of a CFC and a U.S. 958 provides rules for determining stock ownership for purposes of Secs. 958 constructive ownership rules, explores the root cause of this "glitch," discusses the ensuing unintended consequences, and discusses planning options to mitigate the negative effects. This item provides an overview of the Sec. These problems include additional compliance burdens, an expansion of entities subject to the controlled foreign corporation (CFC) rules, and income inclusions by certain ultimate U.S.
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entities may now be deemed to own and control other foreign entities in the structure, causing a whole host of problems. The overly broad repeal resulted in certain subsidiary corporations being deemed to own interests in brother/sister entities through the application of the downward attribution rules provided in Sec. The legislative history suggests that the repeal was intended to be partial and surgical, but the actual legislative language simply repealed Sec. Through what many describe as a drafting "glitch," the TCJA completely repealed an exception to the application of the constructive ownership rules provided in pre- TCJA Sec. And now, what is at the bottom of the structure may be as important as what is at the top. However, that paradigm was turned upside down as a result of the TCJA. owner held directly, indirectly, or constructively sufficient interests in foreign corporations. One generally started at the top of an organization structure and worked one's way down to determine if an ultimate U.S. 115- 97, known as the Tax Cuts and Jobs Act (TCJA), an analysis under Sec.
Irc 318 code#
These constructive ownership rules are used in a number of places throughout the Internal Revenue Code to determine ownership of foreign entities. 958 is an operative section that provides constructive ownership rules.