Controlled Foreign Corporation
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Controlled Foreign Corporations or Companies, also known as CFCs, are a legal construction of the various tax authorities around the world. It is a concept describing a legal entity that exists in a foreign jurisdiction but is owned or controlled by tax-residents of a different jurisdiction. CFC laws were introduced to stop tax evasion through the use of offshore companies in low-tax or no-tax jurisdictions such as tax havens. It's usually not illegal to have a financial or controlling interest in a foreign legal entity, however many governments require that you declare your interests and pay tax on them, and CFC laws (combined with a no-tax jurisdiction or a double taxation agreement) sometimes mean that a company is only taxed in your jurisdiction.
Many countries' CFC laws are quite broad and make it infeasible to have an offshore company. Other countries target individuals owning offshore companies, but are more lax where corporations (particularly large multinationals) are concerned. Since many countries nowadays have made tax evasion a criminal offense, and with increased information sharing among tax authorities, it is less desirable to take a risk of not declaring foreign financial interests.
Usually it is possible to get around CFC laws by having a sufficient number of people with an interest in the company, but the required numbers vary greatly. In some jurisdictions, perhaps less than ten persons are required to own an offshore company before it is given its independence, whereas in other countries, you'd need hundreds. Some countries, like Australia, also have an exception list of countries whose companies will not be classed as CFCs. This is usually because the taxes levied there are equivalent or higher than in the shareholders' country.
Sometimes it is advantageous to have a CFC regardless of having to pay tax in your current country. This could be because the cost of setting up a foreign company is considerably less than setting up a local company, or a company situated in a particular country will be seen as more professional and worldly than one in your own country.