Look Thru
Categories: Tax
Let’s talk about CFCs. No, not chlorofluorocarbons—those are so 1992—but the other CFCs: controlled foreign corporations.
CFCs are companies that are registered and do business in one country, but their controlling owners live in another country. In the United States, when a CFC earns income, it’s called Subpart F income, and they have to pay taxes on it. The Look Thru Rule allowed CFCs to exclude things like royalties and dividends from their Subpart F taxable income.
What did this look like in practice? It looked like lowered taxes for certain multinational corporations. The thinking was that, if they were taxed less, they’d have more flexibility to use that money on stuff needed to run and grow the business.