The rules for CFC are subject to various constructive ownership rules. The attribution and constructive ownership rules are used to discern whether a foreign corporation is a U.S. controlled—whether it is a controlled foreign corporation. For example, the shares owned by your spouse are imputed to you (and vice versa). Other constructive ownership rules are better understood by way of an example.

Example—indirect ownership. Corporation is incorporated in Switzerland, owned 30% by Bob (a U.S. citizen), 70% by Partnership (a German partnership). But that Partnership is in turn owned 50% by Bob, and 50% by a Hans (a German citizen). Thus, because Bob owns 50%, the tax Code “looks through” the Partnership and attributes Bob’s ownership interest indirectly to him. Accordingly, 50% of Partnership’s 70% is attributed to Bob (i.e. 35%). When combined with his direct 40% ownership, he owns 65% (30% plus 35%) of the Swiss Corporation, thereby making it a controlled foreign corporation, since more than 50% is owned, directly or indirectly, by a U.S. citizen, Bob.