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C corporation owning foreign company

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Level 3

How is the ownership reported in Form 1120. Company A is incorporated in a foreign country.  And the Company B was registered as C corp in Delaware. Now, B owns 100% of A, more likely B is a holding company of A. How is this shown in 1120? What schedules do I need to fill out. Since A is 100% owned by B, does it mean I need to fill out 5471 too? Also, do I also need to consolidate their income?

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Level 15

The wholly owned foreign corporation is a CFC.  Generally, the US Co will need to file a 5471 together with 1120.

There are a couple more levels of review you will likely need to do:

  • Org chart with full details of the different levels of ownership to determine attributions and reporting requirements;
  • Entity type and liability in country of formation to determine whether the Foreign Co is a per se corporation based on Treas. Reg.; and
  • Types of income and business activities of Foreign Co to determine application of Subpart F.

US tax treatment is not driven by how a particular entity type organized under foreign law is treated for tax or legal purposes in that particular jurisdiction.  The IRC's classification regulations for foreign entities are also slightly different from those for domestic ones.

You should review whether the foreign entity type of that particular country is classified a per se corporation based on Treas. Reg.  The default classification depends on whether there's one or more owners as well as whether each has a limited liability, and whether CTB election was made.  For example, if your client's foreign entity type is not a per se foreign corporation, your client is the sole owner, and your client has only a limited liability, the default classification is generally a corporation.  If a CTB election was made for the foreign corporation, it would be treated as a foreign disregarded entity for US tax purposes.

If the Foreign Co is not a foreign disregarded entity, there would be considerations for dividends, Subpart F, and GILTI, partly dependent on its types of income and business activities.

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Still an AllStar

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2 Replies 2
Highlighted
Level 15

The wholly owned foreign corporation is a CFC.  Generally, the US Co will need to file a 5471 together with 1120.

There are a couple more levels of review you will likely need to do:

  • Org chart with full details of the different levels of ownership to determine attributions and reporting requirements;
  • Entity type and liability in country of formation to determine whether the Foreign Co is a per se corporation based on Treas. Reg.; and
  • Types of income and business activities of Foreign Co to determine application of Subpart F.

US tax treatment is not driven by how a particular entity type organized under foreign law is treated for tax or legal purposes in that particular jurisdiction.  The IRC's classification regulations for foreign entities are also slightly different from those for domestic ones.

You should review whether the foreign entity type of that particular country is classified a per se corporation based on Treas. Reg.  The default classification depends on whether there's one or more owners as well as whether each has a limited liability, and whether CTB election was made.  For example, if your client's foreign entity type is not a per se foreign corporation, your client is the sole owner, and your client has only a limited liability, the default classification is generally a corporation.  If a CTB election was made for the foreign corporation, it would be treated as a foreign disregarded entity for US tax purposes.

If the Foreign Co is not a foreign disregarded entity, there would be considerations for dividends, Subpart F, and GILTI, partly dependent on its types of income and business activities.

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Still an AllStar

View solution in original post

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Level 3

Thanks a lot. Then US Co will not consolidate the income of US and Foreign Co? Only its income will reflect on 1120 unless there are dividends and GILTI?

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