The Resource A comparative analysis of CFC regimes in Latin America

A comparative analysis of CFC regimes in Latin America

A comparative analysis of CFC regimes in Latin America
A comparative analysis of CFC regimes in Latin America
  • eng
  • eng
This article compares the functioning of controlled foreign corporation (CFC) rules in Latin America as well as their effectiveness under the new challenges in international business. Section I of this article summarizes the structure of the CFC rules in the United States. This article analyzes the concept of CFCs, the attribution of income under title 26, subtitle A, chapter 1, subchapter N, Part III, subpart F of the U.S. Internal Revenue Code, known as subpart F income. It also analyzes the exceptions on attributions of income and the foreign tax credit associated with the subpart F income recognized in order to avoid double taxation. Section II discusses the specific CFC rules in Latin America, including an overview regarding the special anti-deferral rules in Mexico, Argentina, Venezuela, and Brazil (the only countries with this type of rule in the region). This analysis shows the development of anti-deferral rules in the region, and it may help to determine the main similarities and differences among them. Section III argues that despite the existence of CFC rules in some Latin American countries, their effectiveness is limited and that these limitations are likely to be exacerbated by new challenges in international business, such as the increase of e-commerce, the use of hybrid entities, and the always difficult distinction between passive and active income. This section also briefly mentions the fundamentals of imposing CFC rules in Latin America, analyzing the classic theory of levantamiento del velo (disregard of legal entity), or abuse of the form, among other theories, to support the establishment of CFC rules in the region. Finally, Section IV addresses the interaction between CFC rules and the OECD model tax treaty. This section explains the conflicts between the CFC rules and income tax treaties based on the OECD model. Even when a complete compatibility between CFC rules and tax treaties can be sustained, practical experience in Brazil (Eagle II) and Mexico (Cemex Net) has demonstrated that it is not always simple to interpret these rules
Citation source
In: Tax notes international. - Falls Church. - Vol. 68 (2012),
Parada, L
Geographic coverage
Latin America
Language note
  • CFC
  • foreign tax credit
  • exemption
  • e-commerce
  • tax treaty
  • case law
A comparative analysis of CFC regimes in Latin America

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