Is foreign personal holding company income subpart F income?

FPHCI is a category of foreign base company income under subpart F income. FPHCI generally includes passive types of income such as interest, dividends, rents, royalties and sales of property held for investment.

What is foreign personal holding company income?

Foreign personal holding company income (FPHCI) is defined for U.S. controlled foreign corporation rules and, with modifications, for U.S. foreign tax credit rules. It consists of interest, dividends, rents, royalties, gains on property producing FPHCI, and certain other items.

What is excluded from foreign personal holding company income?

Foreign personal holding company income shall not include rents or royalties that are derived in the active conduct of a trade or business and received from a person that is not a related person (as defined in section 954(d)(3)) with respect to the controlled foreign corporation.

What is foreign base company income?

(1) In generalFor purposes of subsection (a)(2), the term “foreign base company sales income” means income (whether in the form of profits, commissions, fees, or otherwise) derived in connection with the purchase of personal property from a related person and its sale to any person, the sale of personal property to any …

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Can a foreign corporation be a personal holding company?

Foreign corp. will qualify as a foreign personal holding company (“FPHC”)(IRC 954(c)(1)) by investing only in passive income (generally consisting of dividends, capital gains, interest, rents, royalties, and annuities) producing assets; … Foreign corp.

What is a subpart F income?

Subpart F income includes: insurance income, foreign base company income, international boycott factor income, illegal bribes, and income derived from a §901(j) foreign country, which are countries that sponsor terrorism or are otherwise not recognized by the US, such as Iran and North Korea.

Is rental income subpart F income?

Under the CFC rules in the context of foreign rental operations, rents are generally subpart F income, with certain exceptions. Thus, unless an exception applies, X and Y would need to report A and B’s rental activity on a current basis.

Is Royalty subpart F income?

Subpart F income FPHCI exception modifications

Under Sec. … Under the final regulations, royalties are not includible in the U.S. shareholders’ taxable income if the royalties are received from a party unrelated to the CFC and are earned from an active trade or business (Regs.

How does Subpart F recapture work?

Each recapture account of the controlled foreign corporation will be recharacterized, on a proportionate basis, as subpart F income in the same separate category (as defined in § 1.904-5(a)(4)(v)) as the recapture account to the extent that current year earnings and profits exceed subpart F income in a taxable year.

What is the high tax exception?

Definition of high tax – The GILTI high tax exception applies only if the CFC’s effective foreign rate on GILTI gross tested income exceeds 18.9% (i.e., more than 90% of the U.S. corporate income tax rate of 21%) and the U.S. shareholder elects for that year to exclude the high-taxed income.

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What is the de minimis rule for Subpart F income?

De minimis is defined as annual Subpart F income that is the lesser of 5% of gross income of the CFC or $1 million. Alternatively, there is a full inclusion rule for Subpart F income that requires 100% inclusion if the sum of the annual CFC’s Subpart F income exceeds 70% of total gross income of the CFC.

Can you have a subpart F loss?

Subpart F income, however, generally is included in the gross income of its U.S. not allowed as a deduction to the U.S. shareholders. reduce other taxable income of a CFC’s U.S. shareholders; however, such losses can reduce a U.S. shareholder’s GILTI inclusions from other CFCs.

What is a foreign base company?

When a foreign company is owned by a US person or persons, it’s a Controlled Foreign Corporation (CFC) for US tax purposes. Even if a CFC is operated abroad, some types of income will be taxable in the US as earned. … The most common type of Subpart F income is referred to as Foreign Base Company Income.

How does a holding company defer taxes?

By passing some of those earnings from your ABC to your holding company, you’ll defer tax, which is essentially the difference between the tax paid by your ABC on its profits, and the amount of tax you would have paid had the profits been paid out immediately to you as a bonus.

What term refers to passive investment in a foreign company’s financial assets?

A passive foreign investment company (PFIC) is a corporation, located abroad, which exhibits either one of two conditions, based on either income or assets: At least 75% of the corporation’s gross income is “passive”—that is, derived investments or other sources not related to regular business operations.

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What is a CFC for US tax purposes?

A controlled foreign corporation (CFC) is a corporate entity that is registered and conducts business in a different jurisdiction or country than the residency of the controlling owners. … Controlled foreign corporation (CFC) laws work alongside tax treaties to dictate how taxpayers declare their foreign earnings.