As discussed in our previous Client Bulletin U.S. Tax Reform: Key Considerations for Non-U.S. Families with Connections to the United States, the Tax Cuts and Jobs Act (the “Act”) changed the stock attribution rules that are used to determine whether a non-U.S. corporation is a “controlled foreign corporation” (or “CFC”) and whether a U.S. person is a “United States shareholder” of the CFC for U.S. federal income tax purposes. Among the changes made by the Act, was the elimination of a previous limitation on so-called “downward attribution”. Prior to the Act, any shares in a non-U.S. corporation that were owned by a non-U.S. person were not attributed down to any U.S. partnership, corporation, trust or estate in which such non-U.S. person held an interest. The Act has eliminated this limitation on “downward attribution.” As a result, a U.S. partnership, corporation, trust or estate will be deemed to own any stock in a non-U.S. corporation that is owned by a non-U.S. partner, shareholder or beneficiary, respectively.
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