Subpart F was created to prevent U.S. citizens and corporations from deferring taxable income through the use of foreign entities. Prior to subpart F, many U.S. taxpayers achieved deferral of U.S. tax on certain kinds of movable income, such as dividends, interest, rents and royalties, by earning such income through foreign corporations (Subpart F Overview, 2014). Subpart F operates by treating a U.S. shareholder of a CFC as if it actually received its proportionate share of certain categories of the corporations current earnings and profits and the shareholder is required to report this income currently in the United States whether or not the CFC makes a distribution (Subpart F Overview, 2014). Transfer pricing refers to the pricing of transactions between controlled entities. Under IRC 382, controlled entities should price transactions in the same way that uncontrolled entities would under similar circumstances (Overview of IRC 482, 2015). This is the arms length standard, which means that the price of the product that a US parent company charges its CFC should be the same as it would charge to an unrelated party for the same product under similar circumstances (Overview of IRC 482, 2015). I do not think it is fair that companies do not pay a tax on their foreign profits. Corporations are able to hold these foreign profits overseas for years before bringing them back into the United States to avoid taxes. While the tax rates on US corporations are very high, as we have discussed in other weeks, there are still many loopholes in our tax laws that allow corporations to lower their taxes. I believe the corporate tax rates could be a little lower but even then the tax rules wouldnt be changed. LB&I International Practice Service Concept Unit Subpart F Overview. (2014, September 3). Retrieved February 10, 2016, from https://www.irs.gov/pub/int_practice_units/DPLCUV_2_01.PDF International global corporations are extremely challenging to tax and audit.

Basically, the US company's foreign subsidiaries are foreign corporations. It's like France taxing US domestic companies, even if their parent is in France. It just can't really be done.

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