Home > Direct Tax > Controlled Foreign Corporation Law (CFC)

Controlled Foreign Corporation Law (CFC)

Government is thinking to introduce Controlled Foreign Corporation Law (CFC). This law will enable Income Tax Dept. to levy taxes on undistributed dividend of enterprises owned by Indian companies, situated in tax heavens like Isle of Man, Cayman Islands and Mauritius. Enterprise owned by Indian holding company need not to pay any taxes on undistributed profit. Presently income earned by overseas enterprises not taxable in India. Such income not actually receives by Indian enterprises (by way of dividend). This income is known as “Undistributed dividend”. But actually such income belongs to Indian company as per his holding ratio. As per experts view, since resources are mobilized from India (to acquire foreign enterprises) so income earned by such enterprises must be taxable in India. Both foreign and Indian enterprises treat as different entity, so major change will be require to treat as one entity. That means IT Act will allow consolidation (AS 21). Today, besides the UK and US, CFC laws are present in 25 countries.

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Categories: Direct Tax
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