If the US taxpayer owns a foreign entity, the income of that foreign entity may be subject to immediate US taxation. C corporations are no exception to the rule.
There are three schemes for reporting foreign subs that are more than 50% owned by the corporation:
- Controlled foreign corporations. Form 5471 is filed on an annual basis with the corporate US tax return. There is a substantial amount of information reported on this form which includes a balance sheet, income statement, related party transactions, detailed analysis of the historical retained earnings, and various other disclosures. The statements are converted to GAAP and then the US tax rules are applied to the net earnings as if it were a US entity.
The net income of controlled foreign corporations can be taxed at the US parent
level at a special low rate, currently 10.5% (going to 13.125% after 2025). This tax is
called GILTI (Global Intangible Low Tax Income). The US corporation gets a
credit at 80% of the Read More