15 Active income PassiveMobileincome /CFC Active income PassiveMobileincome Active Passive Passive income Zoltab Gerendy passive income passive income passive income 1 Active income PassiveMobileincome Activeincome PassiveMobileincome Reform of Corporation Tax 2 profits passive active 2.6 1 Zoltab Gerendy, The future of source taxation at passive income, TAX TREATY POLICY AND DEVELOPMENT 2 HM Treasury and Inland Revenue, REFORM OF CORPORATION TAX A consultation document. -1 -
15 CFC foreign business income mobile income 3 [ ] CFC the passive Conduct of an active business highly mobile FPHCI 4 5 3 PRESIDENT S ADVISORY PANEL ON FEDERAL TAX REFORM, SIMPLE, FAIR AND PRO-GROWTH : PROPOSALS TO FIX AMERICA S TAX SYSTEM, REPORT OF THE PRESIDENT S ADVISORY PANEL ON FEDERAL TAX REFORM hereinafter as PRESIDENT S ADVISORY PANEL REPORT 4 IRC IRC H.R., nd Sess., 5 IRC -2 -
15 CFC 6 7 F F 8 9 10 Active income PassiveMobileincome F F Active income PassiveMobileincome 11( ) 6 STAFF OF JOINT COMM..ON TAX N, OPTION TO IMPROVE TAX COMPLIANCE AND REFORM TAX EXPENDITURE, JCS--, 7 Id. 8 Id., at. 9 PRESIDENT S ADVISORY PANEL, supra note, at -. 10 Clifon Fleming Jr. & ROBERT J. Peroni, Exploring the contours of a proposed U.S. exemption (Territorial Tax system), Tax Notes Int l 11 Office of Tax Policy Department of the Treasury, THE DEFERRAL OF INCOME EARNED THROUGH U.S. CONTROLLED FOREIGN CORPTIONS, hereinafter as CFC Report -3 -
15 IRC passive income which is of a kind which would be foreign personal holding company income 904 d 2 B IRC 904 d 2 B ( 904d2B 904 d2 C CFC F 904 d3 Active conduct of trade or business 1.904-4TB2 F Active conduct of trade or business 12 IRS 13 Notice 88-221988-11 I.R.B. 19 14 12 Staff of Joint Comm. on Taxation, th Cong., Gen. Explanation of the Tax Reform Act of 1.See also, Diane M. Sullivan, WHY DOES TAX LAW RESTRICT SHORT-TERM TRADING ACTIVITY FOR ASSET SECURITIZATION?, Va. Tax Rev.. 13 14 See,Kevin M. Cunningham, THE PFIC RULES: THE CASE OF THROWING THE BABY OUT WITH THE BATHWATER, Va. Tax Rev.. -4 -
15 IRC 904 Passive activity 1.864-4C3business-activities test IRC 904 MedChem Inc. 15 Active conduct of trade or business 1986 predominantly engaged substantial activity 954h2A Predominantly engaged 954h2B Substantial activity CFC 954h3C Substantial activity 17 15 MedChem Inc. v. Comm'r, T.C.. 16 Megan McLaughlin, Truly a Wolf, or Just a Sheep in Wolf's Clothing? The Active Financing Exception to Subpart F, Va. Tax Rev.. 17 Id, at. -5 -
15 Active income PassiveMobileincome Active 18 19 bona fide Taxing of Foreign Profits 20 (Controlled Company) 1.14 3.10 CC active income mobile passive income 1.16 active income mobile passive income mobile income Exemption Activities Test 18 CFC Report, supra note, at -. 19 Id, at. 20 HM Treasury and HM Revenue & Customs, TAXATION OF COMPANIES FOREIGN PROFITS discussion document (2007). -6 -
15 21 mobile income passive income mobile income 4.19 passive income active income 22 passive income passive income 4.21 4.22 passive income 4.24 active income 4.19 23 passive income active income mobile active income 4.28 EAT mobile active income 4.29 21 ICTA 22 passive income active income 23 See also, Morgan, C. et al., Under control? : taxation of foreign profits, The tax journal. -7 -
15 mobile income passive income other mobile income passive income active income passive income EAT mobile income active income passive income other mobile income (mobile active income) excluded active income capital gains substantial passive income traditional passive income -8 -
15 SourceInland Revenue, National Statistics) 9798 38,639 5,979 21,420 9899 40,417 6,965 22,304 9900 35,998 5,924 26,626 0001 42,530 9,585 31,280 0102 38,139 0203 34,758 9,092 6,169 28,267 28,230 Cadbury Schweppes 25 actually established genuine economic activities 24 25 Case C-,Cadbury Schweppes Cadbury Schweppes & Cadbury Schweppes Overseas Ltd, of,. -9 -
15 2 15 5 1988 ICTA1988 Cadbury Schweppes actually established genuine economic activities CFC EEA business establishments actually established actually established 26 genuine economic activities 4 Net Economic Value NEV 26 Case C-1, at para.. - 10 -
15 751A 5 6 27 genuine economic activities 28 29 [Net Economic Value 27 A (HMRC Draft Guidance CHANGES TO CONTROLLED FOREIGN COMPANIS RULES) CFC 28 CFC 29-11 -
15 business establishmentsnev ( Avi-Yonah ) 30 ~ Avi-Yonah Active income Passive Mobile income active business income passive income active income passive income 31 Avi-Yonah 1 (Single Tax principle Benefits principle active income ( )passive income ( ) 30 Reuven S. Avi-Yonah, The Structure of International Taxation : A Proposal for Simplification, Tax L. Rev.,. 31 Reuven S. Avi-Yonah, Tax Competition, Tax Arbitrage, and The International Tax Regime, Public Law and Legal Theory Working Paper Series No., at - 12 -
15 James Hines 32 Ownership active Ownership Kevin Holmes 33 Generally, the active/passive approach reduces the compliance costs of a business (c.f. a CFC regime) because businesses that fully satisfy the active business test are totally exempt from the regime and therefore do not need to account for their foreign sourced income to the tax authority of their resident state. Under a CFC regime, such income is returned in the home state; thus, the incurrence of compliance costs.the active/passive approach is particularly effective in reducing taxpayer compliance costs where the test of an active business tolerates a negligible amount of passive income accompanying the offshore business income because in most cases the compliance costs of attributing passive income to the taxpayer in the residence state outweigh the risks to the residence state's tax base arising from incidental amounts of passive income accumulating in otherwise active offshore activities. [] 32 33 Kevin Holmes, INTERNATIONL TAX POLICY AND DOUBLE TAX TREATIE. - 13 -