The change in controlled foreign corporation (CFC) ownership rules brought in by the US tax reform will impact group captives, according to Tom Jones of McDermott Will & Emery.
Speaking on the hot topics panel at the World Captive Forum alongside Bruce Wright of Sutherland, Asbill & Brennan, Jones suggested that the expanded definition of a US shareholder for purposes of CFC determination will cause issues for group captives.
Jones said: “A side of the captive world that will be affected will be group captives, usually in Bermuda or Cayman Islands.”
He added: “A lot of those are specially structured but now their special structures don’t work any longer.”
The Tax Cuts and Jobs Act, which was signed into law on 22 December 2017 by President Trump, will look to the value of ownership, or weight of vote in the foreign company, rather than just on weight of vote as was previously the case.
Furthermore, any prior CFCs will face the "deemed repatriation" provisions where any prior untaxed earnings and profits from CFCs will also now be included as income and taxed in the US.
