How does the U.S. government tax controlled foreign corporations (CFC) differently from other subsidiaries?

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CFCs are subject to the Subpart F rules under the U.S. tax code, which requires certain types of income earned by the CFC to be immediately taxed by the U.S. regardless of whether or not the income is repatriated to the U.S. as dividends. This includes passive income such as dividends, interest, rent, and royalties. However, active income earned by the CFC through the sale of goods or services is not subject to immediate taxation and is only taxed when the income is repatriated to the U.S. as dividends.

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