Subpart F income includes a CFCs foreign base company income
(FBCI), (4) which is the sum of its foreign personal holding company income, (5) foreign base company sales income, and foreign base company services income.
(11) Tested income or loss generally is calculated as a CFC's gross income after excluding items of high-taxed foreign base company income
, Subpart F income, related-party dividends, certain foreign oil and gas extraction income, and income of the CFC taxable in the United States as effectively connected income, less deductions allocable to tested income.
Subpart F income includes foreign base company income
, which in turn includes FPHCI.
(For more information, see "Significant Changes to Definitions of Foreign Base Company Income
," JofA, Jan.96, page 34).
However, the net foreign base company income
of a controlled foreign corporation that is attributable to such tax-exempt interest shall be treated as tax-exempt interest in the hands of the U.S.
954 defines "foreign base company income
" as the sum of a CFC's FPHCI, foreign base company sales income, foreign base company services income, and foreign base company oil-related income for the tax year.
Let me offer two brief examples--our regime for taxing foreign base company income
under Subpart F and our foreign tax credit regime, both of which impede our ability to compete.
Recently published final regulations under Internal Revenue Code sections 954 and 957 define "foreign base company income
," "foreign personal holding company income" and "controlled foreign corporation (CFC)" for purposes of the subpart F provisions.
952(a)(2) foreign base company income
comes into play.
De Minimis Rule for Subpart F Income: Section 954(b)(3) of the Code provides that no part of a CFC's gross income is treated as foreign base company income
(FBCI) if its FBCI and insurance income for the year is less than the smaller of(i) five percent of its gross income for the year or (ii) $1 million.
The most common component of subpart F income is foreign base company income
, which consists of FPHC income (FPHCI) (e.g., passive income), foreign base company (FBC) sales or services income and FBC income from special industries.
The reduction of FOSUB's gross income could affect certain Subpart F calculations, e.g., the 5-percent and 70-percent gross income thresholds in sections 954(b)(3)(A) and 954(b)(3)(B), respectively, and, perhaps, the section 954(b)(4) exclusion for high-foreign-taxed foreign base company income
. Other tax regimes involving gross income tests might also be affected, including personal holding company or foreign personal holding company determinations.(13) Expense allocations based on relative gross income amounts could be altered.