24 October, 2011

Let’s take actions on CFC rules

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Por: PBS OneWorld

With globalization, barriers to international trade and capital flows have lowered significantly. Globalization has also lead to a considerable growth of the number of Companies having foreign entities. Although, in general terms, one could say that globalization has improved our economies and our lives, it has also lead to the development of harmful tax practices. International organizations and local governments have taken action on this to prevent tax evasion. In fact, the OECD report of 1998 on Harmful Tax Competition recommended the introduction of CFC rules to put a curb on harmful tax practices. Like many other OECD countries, Spain also applies CFC rules, as a measure to prevent the use of intermediary companies whose main purpose is deferring the payment of taxes by the Spanish resident shareholder.

Leaving aside the technicalities and complexities of these rules, we would like to walk you through their basics, to get a better understanding of how they work.

So, which are these basics?

CFC rules apply to apportion a foreign Company’s income to the Spanish parent Company (or individual) and to subject it to current taxation in Spain, without the need of a dividend distribution.

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