RESTRAINING HARMFUL TAX COMPETITION: AN ANALYSIS OF AMERICAN CFC LEGISLATION

Abstract

Capital and labor mobility facilitates cross-border activities of enterprises. In the era of globalization the optimal choice of investment location gives enterprises an op-portunity to profit maximization. As a result the governments competing for foreign direct investment offer to enterprises preferential tax treatment. In order to minimize the loss of tax revenue countries imposing high effective tax rates on enterprises implement diversified anti-tax-avoidance measures. One of these measures is controlled foreign corporation. The article examines the application of the controlled foreign corporation rules in the United States of America to combat harm-ful tax competition. It has to be underlined, that the American controlled foreign cor-poration legislation was a prototype for other countries that use this institution to prevent tax avoidance. The aim of this article is to review the controlled foreign corporation legislation in the USA, analyze the structure of CFCs and the structure of their subpart F in-come in this country and evaluate the efficiency of this anti-tax-avoidance measure. The author describes inter alia, implications of harmful tax competition and the CFC rules. As the provisions of controlled foreign corporation are also planned to be in-troduced in Poland, the American legislation might be a good example of its suc-cessful implementation.