CFC rules (Controlled Foreign Company rules) are provisions designed to prevent taxpayers from shifting income into low-taxed foreign companies. Where a foreign company earns predominantly passive income (interest, royalties, dividends) and is taxed at a lower rate than in the shareholder's home state, that income can be attributed to the shareholder and taxed in their home country - even if no distribution is made.
The thresholds and scope differ considerably between countries. The UK CFC regime in Part 9A of TIOPA 2010 applies to UK companies that control foreign companies and works through a series of gateway tests: profits artificially diverted from the UK are apportioned to UK corporate shareholders and charged to corporation tax. For individuals, the relevant anti-avoidance is the Transfer of Assets Abroad regime (ITA 2007), which can attribute the income of a foreign company to a UK resident who has the power to enjoy it. By comparison, Germany applies its CFC charge below an effective rate of 25 percent, the Netherlands below 9 percent and France from 12.5 percent.
For Malta structures this means: although the Maltese imputation system reduces corporate tax to an effective 5 percent, CFC and attribution rules can neutralise that advantage if the company lacks sufficient economic substance in Malta or earns predominantly passive income. The strongest defence is evidence of a genuine economic activity in Malta with qualified staff, dedicated premises and management decisions taken on the island.
