US Issues Proposed Regulation On Ownership Attribution To Determine CFC Relatedness

May 21, 2019by TPA Global

The US Internal Revenue Service (IRS) released proposed regulations under section 954(d) of the Internal Revenue Code (IRC) on 17 May 2019, which were published in the federal register on 20 May 2019. The proposed regulations provide rules regarding the attribution of ownership of stock or other interests for purposes of determining whether a person is a related person with respect to a controlled foreign corporation (CFC) under IRC section 954(d)(3). In addition, the proposed regulations provide rules for determining whether a CFC is considered to derive rents in the active conduct of a trade or business for purposes of computing foreign personal holding company income (FPHCI).


The proposed regulation would affect United States persons with direct or indirect ownership interests in certain foreign corporations.

The preamble to the proposed regulations explains that because of a lack of guidance in existing regulations, the proposed regulations would revise the existing regulations under section 954(d)(3) to provide some specific guidance on the application of principles similar to the constructive ownership rules in section 958(b).

The proposed regulations also would revise rules under section 954(c). FPHCI (defined in section 954(c)) generally includes rents. However, rents are excluded from FPHCI if they are received from a person other than a related person and derived in the active conduct of a trade or business within the meaning of section 954(c)(2)(A) and Reg. section 1.954-2(c) (the active rents exception). The preamble to proposed regulations explains that the rules under section 954(c) would be revised to provide guidance on the treatment of amounts (including royalties) paid or incurred by a CFC in connection with the CFC’s rental income for purposes of the active rents exception.


The deadline for comments on the proposed regulations will be 60 days after they are published in the federal register.

Source: US Government

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