Controlled Foreign Company Regimes and Double Taxation

Without a controlled foreign company regime, taxpayers can establish companies in other countries to trap foreign-source income or accept income diverted from domestic sources. At one extreme, a regime may cover all foreign jurisdictions. At another, it may cover only tax havens. Some countries apply their controlled foreign company regimes to certain categories of income only, generally passive income, or income from transactions with the foreign company’s domestic owners. Other regimes cover all income, including the income of active businesses. Regimes ordinarily contain provisions to mitigate double taxation that may occur when a local taxpayer sets up a company in a foreign jurisdiction for a commercial or industrial purpose