Controlled Foreign Corporation (CFC)

A Controlled Foreign Corporation (CFC) is a foreign company in which U.S. shareholders own more than 50% of its voting power or value. This structure is important for tax purposes, as the U.S. tax system aims to prevent companies from shifting profits overseas to avoid taxes. Income earned by a CFC may be subject to U.S. taxation, even if not distributed to shareholders. This helps ensure that U.S. citizens and businesses pay appropriate taxes on their global income, discouraging tax avoidance through foreign subsidiaries.