Hello, and welcome to the first video of the third module of our course, rethinking international tax law. During this module, we will study the international aspects of corporate tax law systems, and we'll also focus on the mechanisms of international tax law. We will address questions such as, what international tax principles do countries apply when allocating corporate taxing rights? What happens if these principles collide? What is the role of tax treaties in this respect? While developments have recently taken place in the field of international tax. We will begin this module, however, by examining in videos 1 and 2, two features of corporate income tax systems that typically manifest themselves in an international environment. In this first video, we will focus on a measure, which a significant number of particularly, high tax countries have adopted into their domestic corporate income tax systems. The measure specifically targets the transfer of mobile activities, for example, financing and licensing to low tax countries. To understand the measure, I note first that the corporate income tax law systems of most countries around the world, do not tax the profits of a subsidiary of a company within its jurisdiction, until the income is distributed by the subsidiary to the parent company as a dividend. Taking this system into account, companies, in particular, companies from, or doing business in, high-tax jurisdictions, started setting up subsidiaries in other low tax countries. And transferred mobile activities to those low-tax jurisdictions to avoid or defer, having to pay corporate income tax in high-tax jurisdictions. In particular, these companies have been set up in tax haven, where, as we saw last module in video 3, not many requirements are imposed for attributing income to that country. As a result, income from, in particular, mobile activities, dividends, interests, royalties, we'll shift this to low-tax jurisdictions, effectively avoiding corporate income tax until the subsidiary paid a dividend to the parent company, if ever. To counter such practices, many countries, in particular, large countries with a big internal market, such as the US and Japan introduced so-called controlled foreign company, or for short, CFC regimes. Under these controlled foreign company regimes, countries attempt to prevent erosion of the domestic tax bases of parent companies, and to discourage companies from shifting income to low-tax jurisdictions. They do so, by triggering current taxation at parent company level, when income that is covered by the measure is realized in low-tax jurisdictions. Controlled foreign company regimes, vary greatly from country to country, but all seek to do away with the deferral of income earned by a subsidiary in a low-tax jurisdiction. In particular, a mobile activities, where these activities could also have generated tax income for parent company, or in another high tax country. Typically, controlled foreign company rules apply under the following circumstances. A parent company has control over a subsidiary. For example, by directly or indirectly holding a percentage of the shares of, of the subsidiary. The subsidiary, with respect to which to control foreign company regime applies, is established in a specifically designated country, a tax haven, for example, or subject to a low effective tax rate. And the subsidiary generates largely passive income, dividend, interest royalties, for example. Over the years, controlled foreign company regimes of many countries have become particularly complex, to the point where they do not always function effectively. Specifically in relation to the US, the controlled foreign company regime is ineffective. Here, I'm talking about the so-called Subpart F rules, in combination with the US foreign entity qualification measures called check-the-box rules, which we will discuss in the next video. As a result, tax spending structures for US multinationals, as we saw Apple, Amazon, and Starbucks in module 1, despite having considerable low tax income outside the US, will not be affected by controlled foreign companies rules. I note that strengthening countries control foreign companies regimes is high on the list of priorities of the OECD, as part of the project on base erosion and profit shifting, or BEPS. We will discuss the BEPS project in more detail, in video 6 of this module. Returning back to the tax planning based case structure. You will note that one of the key features, number 4, is no current taxation of the low tax profits at the level of the ultimate parent. Applying what we've learned in this video, we can understand now, why the absence or inefficient functioning of a control foreign company regime, facilitates a tax planning structure. In particular, the planning strategy is to accumulate income into Intermediate Sub 2 in Low tax Country C can only be effective without a controlled foreign company regime in place at Parent Co level. In the next video, we will assess another international ta, tax law aspect of corporate tax law systems, namely, hybrid mismatches.