What the New CFC Amendments Mean for Australians Structuring Their Investments into the United States of America through LLCs
Asia Pacific Tax Bulletin, Vol. 14, No. 3, pp. 188-197, June 2008
3 Pages Posted: 24 Oct 2009 Last revised: 23 Nov 2015
Date Written: June 1, 2008
Abstract
With any business investment overseas there are numerous considerations, one of which is whether to conduct via a branch or to create a separate foreign business form. For Australians investing into the United States (the US) there are a number of business forms, extending from corporations, limited liability companies (LLCs), limited liability partnerships (LLPs) to business trusts. Since their inception in the late 1970s, LLCs are growing in popularity in the US. This may be attributed to tax and non-tax reasons.
Recent amendments to Australia’s income tax treatment of LLCs (the Controlled Foreign Corporation (CFC) hybrid amendments) may open the way for Australians to use LLCs when investing into the US. The LLC has been touted by some as providing improved governance compared to corporations, while still providing limited liability for members and separate legal entity status. For Australians, LLCs provide an entity that can circumvent both the US classical tax system applying to corporations and Australia’s own CFC and Foreign Investment Fund (FIF) rules.
This article will initially consider what the US tax treatment of corporations and LLCs is, and the extent of their utilization. The article will then consider what the implications for Australian residents investing into the US through LLCs are, and in particular how the CFC hybrid amendments affect this. It will be argued that while the CFC hybrid amendments are welcomed, there are some concerns with their operation and there continue to be some inconsistencies in treatment between the two jurisdictions. These inconsistencies may inhibit the ability of Australians to take full advantage of investment opportunities in the US.
Keywords: LLC, S Corporations, Australia, United States, CFC
JEL Classification: K 34
Suggested Citation: Suggested Citation