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The US international tax compliance and reporting obligations for US
shareholders of CFCs have become increasingly burdensome and
complex, largely attributable to the TCJA and the overall global trend
toward greater transparency with respect to international operations
and transactions.

indefinitely to the extent the CFC earned in low-tax jurisdictions. GILTI passive income earned by a CFC.
did not run afoul of the so-called U.S. was designed to prevent U.S. persons This type of Subpart F income
anti-deferral regime that consisted then from shifting profits from the United typically includes items such
of the Subpart F income provisions States to low-tax jurisdictions by way as dividends, interest, royalties,
under Sec. 952 and the investment in of transferring intellectual property rents, annuities, and certain
U.S. property provisions under Sec. 956. or other intangible proprietary assets currency/transaction gains.
Thus, in the absence of an actual divi- offshore. With the enactment of GILTI ● Sec. 954(a)(2) foreign-based
dend distribution, a U.S. shareholder and other similar global initiatives company sales income (FBCSI):
could defer its offshore E&P indefi- such as the European Union’s anti–tax FBCSI represents income derived
nitely, provided the U.S. anti-deferral avoidance directive (ATAD) and the by a CFC from a purchase or sale
rules were inapplicable. Organisation for Economic Coopera- of personal property involving a
That said, if a U.S. shareholder was tion and Development’s base-erosion related party in which the goods
required to include in U.S. taxable in- and profit-shifting (BEPS) initiatives, are manufactured and sold for
come the earnings of a CFC related to many taxpayers have discovered that the use/consumption outside the
Subpart F income, investment in U.S. days of deferring meaningful amounts CFC’s country of incorporation.
property income, or actual dividend dis- of offshore E&P from current U.S. taxa- ● Sec. 954(a)(3) foreign-based
tributions paid to U.S. shareholders from tion have come and gone. Accordingly, company services income: This
E&P, the annual E&P balances of the with the many ways by which E&P of a represents the service income
CFC would need to be tracked to ensure CFC can be included into U.S. taxable earned by a CFC in connection
the corresponding previously taxed earn- income of U.S. shareholders, the corre- with the specified services that
ings and profits (PTEP) were properly sponding reporting for these inclusions are performed on behalf of a
maintained so that the U.S. shareholder and PTEP accounts on Form 5471 has related party and outside the
would avoid double taxation on the same grown much more intricate and integral, country in which the CFC is
item of income on future distributions as discussed next. incorporated (see Sec. 954(e)).
from the CFC. Specifically, the U.S. ■ Sec. 953(a) insurance income,
shareholder would report the current- Common foreign income which is defined as any income
year and accumulated E&P or deficits inclusions of US shareholders that is attributable to issuing or
of the CFC along with the correspond- U.S. shareholders of a CFC typically the reinsuring of an insurance or
ing PTEP accounts and nonpreviously must include in gross income each of annuity contract and that would be
taxed E&P on Schedule J, Accumulated the following: taxed under Subchapter L if it were
Earnings & Profits (E&P) of Controlled Subpart F income: Under the income of a domestic insurance
Foreign Corporation, and Schedule P, Sec. 952, Subpart F income gener- company; and
Previously Taxed Earnings and Profits of ally includes a U.S. shareholder’s ■ Sec. 952(a)(3), which is certain
U.S. Shareholder of Certain Foreign Cor- pro rata share of a CFC’s E&P at- income earned by a CFC as a
porations, both of Form 5471. tributable to the following income- person participating in a Sec. 999
Post-TCJA: The TCJA created an generating activities: international boycott.
additional U.S. anti-deferral regime ■ Sec. 954 foreign base company Sec. 956 investment in U.S.
under Sec. 951A, commonly referred to income (FBCI), which comprises: property income: Under Sec. 956(a),
as GILTI, which is intended to impose ● Sec. 954(a)(1) foreign personal U.S. shareholders of a CFC are required
a minimum tax with respect to a U.S. holding company income (FPHCI): to include in gross income their pro rata
shareholder’s foreign-source income FPHCI represents the net share of the average quarterly amount

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