What is meant by "subpart F income"?

Subpart F income refers to certain types of income earned by controlled foreign corporations (CFCs) that are considered problematic for U.S. tax purposes and are therefore subject to immediate taxation in the U.S. This provision is designed to prevent U.S. taxpayers from deferring tax on certain income that is earned in foreign jurisdictions.

Under Subpart F rules, when U.S. shareholders control a foreign corporation, specific categories of income, like foreign base company income and insurance income, are taxed in the year they are earned rather than when they are distributed to the shareholders. This means that even if the income is not repatriated back to the U.S., U.S. shareholders must include it in their taxable income for that year.

Such provisions help to curb base erosion and profit shifting strategies that might allow U.S. companies to avoid U.S. taxation by shifting profits to subsidiaries in low-tax jurisdictions. Thus, the core concept of Subpart F income revolves around the immediate tax implications for U.S. shareholders of controlled foreign corporations, ensuring that they do not advantageously defer taxes on certain income types.