By Kimberly S. Blanchard, Esq.
Weil, Gotshal & Manges LLP, New York, NY
Action 3 of the OECD's Base Erosion and Profit Shifting (BEPS) agenda promised to address how countries could use controlled foreign corporation (CFC) rules to combat BEPS. Unfortunately (or fortunately, depending upon one's vantage point), as is pretty much universally agreed, the OECD's draft report on CFC rules (the "draft")1 failed in every conceivable way to address the issues presented by the use of CFCs. The draft's incoherence was principally attributable to the fact that its authors never came to grips with two fundamental questions of how CFC rules might be relevant to BEPS. First, the draft failed to acknowledge the very different role that CFC rules play in territorial and in worldwide taxation systems. Second, the draft exhibited a puzzling inconsistency and hypocrisy on the extent to which CFC rules should be designed to discourage foreign-to-foreign profit shifting, as opposed to merely profit shifting from the owner's residence country.