INTERNATIONAL 

TAXATION

Information on 

Foreign-Owned but 

Essentially U.S.-Based 

Corporate Groups Is 

Limited

Report to the Committee on Finance, 

U.S. Senate

July 2012

GAO-12-794

United States Government Accountability Office

GAO
Page i GAO-12-794 International Taxation

Letter 1 

Scope and Methodology 2

Summary 3

Agency Comments 4

Appendix I Briefing Slides 6

Abbreviations

FCDC foreign-controlled domestic corporation

IRS Internal Revenue Service

SOI Statistics of Income

Contents

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Page 1 GAO-12-794 International Taxation

United States Government Accountability Office

Washington, DC 20548

July 16, 2012

The Honorable Max Baucus

Chairman

The Honorable Orrin G. Hatch

Ranking Member

Committee on Finance

United States Senate

A multinational corporate group, whether U.S.-owned or foreign-owned, 

with subsidiaries inside and outside of the United States can shift income 

to its subsidiaries in countries where corporate taxes are lower in order to 

avoid or evade U.S. taxes. As detailed in previous reports, this income 

shifting can be accomplished through such practices as manipulating 

transfer prices (the prices that members of the corporate group charge 

each other for goods and services).1

It is not clear what is known about foreign-parented corporate groups with 

U.S. subsidiaries where the majority of worldwide operations are in the 

United States. You asked us to provide information about corporate 

groups that fit this description. Specifically, we agreed to determine (1) 

whether there are advantages in this ownership structure for avoiding or 

evading taxes, and (2) what is known about the number, size, type, and 

other relevant characteristics of these corporate groups and how they 

came to be organized with this structure.

Foreign-owned multinational 

corporations can do this even if the majority of their economic activity is in 

the United States. Tax policymakers have long been concerned about the 

tax compliance implications of these practices.

The enclosed slides (see app. I) compile and expand upon information 

previously presented to you in response to your request for information 

about certain foreign-owned but essentially U.S.-based corporate groups.

 

1

See, for example, GAO, International Taxation: Study Countries That Exempt ForeignSource Income Face Compliance Risks and Burdens Similar to Those in the United 

States, GAO-09-934 (Washington, DC.: Sept. 15, 2009); International Taxation: 

Information on Federal Contractors With Offshore Subsidiaries, GAO-04-293

(Washington, DC.: Feb. 2, 2004); and International Taxation: Transfer Pricing and 

Information on Nonpayment of Tax, GAO/GGD-95-101 (Washington, DC.: Apr. 13, 1995).

 
 

Page 2 GAO-12-794 International Taxation

To determine whether there are advantages in the foreign-controlled 

domestic corporation (FCDC)2 ownership structure for avoiding or 

evading taxes,3

To determine what is known about these corporate groups, we reviewed 

academic, government, and other research to find studies that reported 

on foreign-owned but essentially U.S.-based corporate groups. We used 

two methods to collect data on these multinational corporations. The first 

method used annual reports to compare U.S. sales

we reviewed applicable laws and regulations and 

interviewed Internal Revenue Service (IRS) officials and academic 

experts.

4 to the foreign parent 

company’s worldwide sales to determine the U.S. share of worldwide 

operations. To implement this method, we took a sample of 100 

corporations identified as large FCDCs from the IRS’s Statistics of 

Income files on corporate tax returns for tax year 2007. We matched 

these FCDCs to their ultimate owners5 using Nexis and annual reports. 

For these ultimate owners that broke out U.S. sales separately in their 

annual reports, we calculated the U.S. share of worldwide operations by 

dividing the U.S. sales by the worldwide sales. The second method used 

the country of the foreign parent company’s principal business activity as 

an indicator of whether the parent company had the majority of its 

operations in the United States. To implement this method, we identified 

the ultimate owners as the ultimate shareholder of the FCDC as reported 

on IRS Form 5472.6

 

2

For purposes of this report, a FCDC is a U.S. corporation with 50 percent or more of its 

voting stock owned directly or indirectly by a foreign person or entity.

We counted the foreign parent companies and 

3

Tax avoidance is the legal practice of reducing taxes owed through such means as taking 

legitimate deductions. Tax evasion, on the other hand, is the illegal practice of willfully not 

paying taxes owed by such means as claiming deductions to which one is not entitled. 

4

We use the term “sales” to represent sales or gross receipts on a tax return, or sales or 

revenue on an income statement.

5

For the purposes of this report, we are using the term "ultimate owner" in two different 

contexts. When applying our first method, we use ultimate owner to mean the ultimate 

foreign parents identified using Nexis, corporate websites, and annual reports without 

regard to the percentage of ownership or other possible owners. In this context, each 

FCDC corresponds with a single ultimate owner. When applying our second method, 

ultimate owner means the ultimate indirect 25 percent foreign shareholder whose 

ownership of stock is not attributable to any other 25 percent foreign shareholder, as 

reported on the Form 5472. In this context an FCDC may have multiple ultimate owners.

6

Form 5472 is entitled “Information Return of a 25% Foreign-Owned U.S. Corporation or a 

Foreign Corporation Engaged in a U.S. Trade or Business.” 

Scope and 

Methodology 
 

Page 3 GAO-12-794 International Taxation

attempted to identify their principal business activity country for all large 

FCDCs that filed Form 5472 in 2008. Also, for this objective, we reviewed 

foreign parent company annual reports and expert studies on how these 

FCDCs become foreign-owned to describe what is known about the ways 

in which they came to be organized as foreign-owned but essentially 

U.S.-based corporate groups.

We conducted this work from July 2011 to July 2012 in accordance with 

generally accepted government auditing standards. Those standards 

require that we plan and perform the audit to obtain sufficient, appropriate 

evidence to provide a reasonable basis for our findings and conclusions 

based on our audit objectives. We believe that the evidence obtained 

provides a reasonable basis for our findings based on our audit 

objectives.

The FCDC ownership structure could provide a tax avoidance or evasion 

advantage relative to a structure where U.S. parents own foreign 

subsidiaries. Academic experts we spoke to said that the FCDC corporate 

structure does not provide an inherently greater ability to evade taxes 

through transfer pricing abuse because transfer pricing rules are the 

same for the FCDC structure as for U.S. corporations with foreign 

subsidiaries. However, according to IRS officials and our own research, 

the FCDC structure could confer a tax advantage because certain rules 

that can limit potential abuse by U.S. parent companies and their foreign 

subsidiaries may not apply to FCDCs and their foreign parent companies. 

These rules (called anti-deferral rules) make immediately taxable to U.S. 

corporations certain types of income such as interest, rents, and royalties 

of their foreign subsidiaries. These types of income tend to be easily 

moveable from one taxing jurisdiction to another and hence more 

amenable to transfer pricing abuse.

Very little is known about the foreign parents of corporations with a 

majority of their operations in the United States. Studies of this corporate 

structure were limited to studies of corporations that inverted to achieve 

this structure. In an inversion, a corporate group with a U.S. owner 

typically creates a new foreign corporation in a low tax country that 

becomes the foreign owner of the corporate group in order to reduce the 

group’s tax liabilities. Even in these cases, the studies did not claim to 

have information on all inversions. Our own attempts to identify foreign 

parents of corporations with a majority of their operations in the United 

States ran into important limitations. In our first method—comparing U.S. 

sales to the foreign parent’s worldwide sales as shown on their annual 

Summary
 

Page 4 GAO-12-794 International Taxation

reports—provided unrepresentative results because too few foreign 

parents broke out U.S. sales separately. In addition, results from our 

second method—using the country where the foreign parent’s principal 

business activities were located (as reported on IRS Form 5472)—were 

difficult because IRS does not define principal countries where business 

is conducted on the form, allowing taxpayers to claim more than one 

country as a principal location where business is conducted. Thus, the 

information on the form does not permit clear inferences about how much 

business the foreign-controlled corporate group does in any particular 

country, including the United States. Without basic information about 

these foreign-owned but essentially U.S.-based corporate groups, 

describing how they came to adopt this structure is not feasible. The 

benefits of obtaining more information about the possible effects on tax 

compliance of these foreign-controlled corporate groups, other 

characteristics of the corporate groups and how they came to be 

organized as they are would have to be weighed against the cost of 

collecting such data.

The IRS provided technical comments after viewing a draft of this report, 

which we incorporated as appropriate.

As agreed with your offices, unless you publicly announce the contents of 

this report earlier, we plan no further distribution until 30 days from the 

date of this letter. At that time, we will send copies to interested 

congressional committees, the Secretary of the Treasury, the 

Commissioner of Internal Revenue, and other interested parties. Copies 

are also available at no charge on the GAO website at 

http://www.gao.gov.

Should you or your staff have questions concerning this report, please 

contact me at (202) 512-9110 or whitej@gao.gov. Key contributors to this 

report were Kevin Daly, Assistant Director; Susan Baker; JoAnna Berry; 

Agency Comments
 

Page 5 GAO-12-794 International Taxation

Emily Gruenwald; George Guttman; Laurie King; Ed Nannenhorn; Karen 

O’Conor; Cynthia Saunders; and Andrew Stephens.

James R. White

Director, Tax Issues

Strategic Issues
Appendix I: Briefing Slides

Page 6 GAO-12-794 International Taxation

Appendix I: Briefing Slides

International Taxation: 

Information on Foreign-Owned but 

Essentially U.S.-Based Corporate 

Groups Is Limited 

GAO-12-794 Foreign Parents of U.S. Corporations 1
Appendix I: Briefing Slides

Page 7 GAO-12-794 International Taxation

2

Introduction

• Foreign-parented groups with U.S. subsidiaries, like other multinational 

corporations, may engage in income shifting to low tax jurisdictions in order 

to avoid or evade U.S taxes.

• A multinational corporate group, whether U.S. owned or foreign 

owned, may have subsidiaries in countries outside the United States 

where corporate tax rates may be lower.

• This corporate structure can provide scope for income shifting through 

such practices as manipulation of transfer prices—the prices that 

members of the corporate group charge each other for goods and 

services—as detailed in prior GAO work.1

• Some of these multinationals—it is not clear how many—are foreignparented corporate groups with U.S. subsidiaries whose U.S. operations 

constitute the majority of the group's worldwide operations.

1GAO, International Taxation: Study Countries That Exempt Foreign- Source Income Face Compliance Risks and Burdens Similar to Those in the 

United States, GAO-09-934 (Washington, DC.: Sept. 15, 2009); International Taxation: Information on Federal Contractors With Offshore Subsidiaries, GAO-04-293 (Washington, DC.: Feb. 2, 2004); and International Taxation: Transfer Pricing and Information on Nonpayment of Tax, GAO/GGD-95-101 

(Washington, DC.: Apr. 13, 1995).
Appendix I: Briefing Slides

Page 8 GAO-12-794 International Taxation

3

Objectives

• Because much is uncertain about these foreign-owned but 

essentially U.S.-based corporate groups, GAO agreed to 

determine:

• whether there are advantages in this ownership structure for 

avoiding or evading taxes, and

• what is known about the number, size, type, and other relevant 

characteristics of these corporate groups and how they came to 

be organized with this structure.
Appendix I: Briefing Slides

Page 9 GAO-12-794 International Taxation

Scope and Methodology

Objective 1

• To determine whether there are advantages in the foreign-controlled domestic corporation 

(FCDC) ownership structure for avoiding or evading taxes, we interviewed Internal Revenue 

Service (IRS) officials and academic experts, and reviewed applicable laws and regulations. 

Objective 2

• We reviewed academic, government, and other research to find studies that reported on 

multinational corporations with FCDCs whose operations were the majority of the multinational’s 

worldwide operations.

• To count these multinational corporations, we used two methods for identifying which foreign 

parents of U.S. subsidiaries had the majority of their operations in the United States. The first 

method compared U.S. sales to the foreign parent’s worldwide sales using annual reports to 

determine the U.S. share of operations. To implement this method:

• We took a sample of 100 corporations identified as large FCDCs1 from the IRS’s Statistics 

of Income (SOI) files on corporate tax returns for tax year 2007. 

• We then used Nexis, corporate websites, and annual reports where available to match the 

FCDCs to their ultimate foreign parents which we will refer to as ultimate owners.

• Of the corporations that we were able to match, we identified those that reported their 

worldwide sales in their annual reports. 

4

1For purposes of this report, a large FCDC has at least $250 million of assets or at least $50 million of sales under this method. 
Appendix I: Briefing Slides

Page 10 GAO-12-794 International Taxation

Scope and Methodology (cont.)

• For these ultimate owners that broke out U.S. sales separately in their annual reports, we 

calculated the U.S. share of worldwide operations by dividing the U.S. sales by the 

worldwide sales as given in the annual reports.

• To evaluate a possible alternative to this method, we also calculated the U.S. shares of 

worldwide operations for these corporations by dividing sales as reported on the 

FCDC’s tax return by worldwide sales from the ultimate owner’s annual report and 

compared the percentages.

• The second method used the country or countries identified as the principal places the foreign 

parent conducted business as an indicator of whether the parent had the majority of its 

operations in the United States. To implement this method: 

• We counted the ultimate owners and attempted to identify their principal business activity 

country using IRS data on transactions between all large FCDCs1 that filed Form 5472

(Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation 

Engaged in a U.S. Trade or Business) and their related parties.

• IRS officials told us that Form 5472 is used by IRS to obtain information on related party 

transactions and to identify potential transfer pricing abuses during examinations. The FCDC 

is not required to file Form 5472 annually—the form is filed only when the FCDC has 

reportable transactions.2

5

1For purposes of this report, a large FCDC has at least $500 million in total receipts under this method. 

2Reportable transactions are those described on Form 5472 and include transactions between the FCDC and related parties made for monetary 

considerations such as sales, rents, etc., but also for nonmonetary considerations.
Appendix I: Briefing Slides

Page 11 GAO-12-794 International Taxation

Scope and Methodology (cont.)

• The SOI Corporate File is a stratified sample of corporate tax returns that is often 

used for research purposes. 

• To ensure reliability, IRS performs a number of quality control steps to verify 

the internal consistency of its data such as computerized tests to verify the 

relationships between values on the returns. 

• We also conducted several reliability tests to ensure that the data excerpts we 

used for this report were complete and accurate, including a comparison of IRS 

published data to our computations to ensure that the data set was complete. 

• To ensure accuracy, we reviewed related documentation and electronically 

tested for errors. We concluded that the data were sufficiently reliable for the 

purposes of this report.

6
Appendix I: Briefing Slides

Page 12 GAO-12-794 International Taxation

Summary

• Academic experts we spoke to said that the FCDC corporate structure does not provide an inherently greater 

ability to evade taxes through transfer pricing abuse because transfer pricing rules are the same for the FCDC 

structure as for U.S. corporations with foreign subsidiaries. However, the FCDC structure may provide an 

advantage because anti-deferral tax rules which backstop the transfer pricing regime by limiting tax advantages 

from income shifting for U.S. parent corporations may not apply to FCDCs and their foreign parents. 

• Very little is known about these foreign-owned but essentially U.S.-based corporate groups and how they came 

to adopt this structure.

• Studies have focused on corporations that inverted to achieve this structure. In an inversion, a corporate 

group with a U.S. owner typically creates a new foreign corporation in a low tax country that becomes the 

foreign owner of the corporate group in order to reduce the group’s tax liabilities. The studies did not claim 

to have information on all such inversions.

• Annual reports did not provide sufficient data for the sample of FCDCs to be representative of all large 

foreign-controlled domestic corporations. Too few foreign parents had publicly available annual reports, 

and of those that did, too few broke out U.S. sales separately.

• Tax information from Form 5472 does not provide reliable information about U.S. sales or other indicators 

of the U.S. share of worldwide operations for these corporate groups. IRS does not define “principal 

country(ies) where business is conducted” on the form and taxpayers can claim more than one country as 

a principal location where business is conducted.

• However, this analysis did reveal that large FCDCs generally were part of a complex worldwide 

corporate structure involving many related parties.

• The absence of basic information about foreign-controlled corporate groups with the majority of their 

operations in the United States makes describing how they came to adopt such a structure infeasible.

• The benefits of obtaining more information about these corporate groups, how they came to be organized as they 

are, and the possible effects on tax compliance would have to be weighed against the cost of collecting this data.

7
Appendix I: Briefing Slides

Page 13 GAO-12-794 International Taxation

FCDCs May Have a Tax Avoidance and Evasion 

Advantage Relative to U.S. Corporations with Foreign 

Subsidiaries

• According to IRS officials and our own research, FCDCs may have an advantage because antideferral rules that can limit potential abuse by U.S. parents and their foreign subsidiaries may not 

apply to FCDCs and their foreign parents. 

• Academic experts we spoke to said that the FCDC corporate structure is not inherently 

advantageous relative to a U.S. corporation with foreign subsidiaries in terms of greater 

ability to shift income through transfer pricing abuse to avoid paying U.S. taxes. The same 

rules for determining the appropriate transfer price would apply under both structures. 

• However, there are also anti-deferral rules that require U.S. parents to report currently (i.e., 

not defer reporting until the income is repatriated) certain types of income (called Subpart F 

income) earned by their controlled foreign corporations (CFC).1 This income includes 

interest, rents, and royalties and other types of income that tend to be easily moveable from 

one taxing jurisdiction to another.

• These anti-deferral rules do not apply to an FCDC unless it is also the owner of a CFC 

or to the foreign parent of an FCDC unless the foreign parent is itself a CFC.

• These rules provide a backstop for the transfer pricing regime that limits income shifting for 

U.S. parent corporations that may not apply to FCDCs and their foreign parents. 

8

1An entity is a CFC if “U.S. shareholders” own more than 50 percent of the total combined voting power of its stock or more than 50 percent of the 

stock’s total value. To be considered a “U.S. shareholder” for the purposes of this definition, a U.S. person must own at least 10 percent of the total 

combined voting power of the corporation’s stock. In calculating ownership, the statute considers direct, indirect, and constructive ownership. 26 U.S.C. 

§§ 951, 957.
Appendix I: Briefing Slides

Page 14 GAO-12-794 International Taxation

No Comprehensive Studies of Foreign-Owned but 

Essentially U.S.-Based Corporate Groups Were Found

• Studies of foreign corporations with a majority of operations in the 

United States were few and not comprehensive.

• The studies that have been done on this corporate structure 

focused on inversions—a practice where, typically, a corporate 

group with a U.S. owner creates a new foreign corporation in a 

low tax country that becomes the foreign owner of the corporate 

group in order to reduce the group’s tax liabilities. 

• These studies analyzed a relative handful of corporations and 

did not claim to have information on all inversions.

9
Appendix I: Briefing Slides

Page 15 GAO-12-794 International Taxation

For Our Sample, Not All Ultimate Owners Could Be 

Identified and Few Broke Out U.S. Sales

• As table 1 shows, of the 100 large FCDCs sampled, we identified 

85 ultimate owners.

• We found annual reports for 63 of these ultimate owners that 

provided worldwide sales.

• Of these 63 ultimate owners, 20 broke out U.S. and worldwide 

sales separately.

• Of the 20 ultimate owners, 16 were foreign.

• There were 22 annual reports we could not find; all were private 

corporations.

10
Appendix I: Briefing Slides

Page 16 GAO-12-794 International Taxation

11

Analysis of the Sample of 100 FCDCs

Ultimate owners Foreign ultimate owner U.S. ultimate owner1

Ultimate

owner 

unknown

Total

Number of ultimate owners by 

country for the sample of 100 large 

FCDCs 

73 12 15 100

Public Private Public Private

Number of ultimate owners that 

were public or private

53 202 4 83 85

Number of ultimate owners that 

identified worldwide sales in 

annual reports 

53 6 4 0 63

Number of ultimate owners that 

broke out U.S. sales from 

worldwide sales

14 2 4 0 20

Source: GAO analysis of IRS data and ultimate owner information.

1A FCDC can have a U.S. ultimate owner when the FCDC’s foreign parent is a corporation that is owned by a U.S. corporation. 2Of these 20 foreign private ultimate owners, 14 were identified using 2012 Nexis and corporate website information and 6 using annual reports with 

2007 sales amounts.

3All 8 of these U.S. private ultimate owners were identified using 2012 Nexis and corporate website information.

Table 1: Number of Ultimate Owners by Country and Availability of Sales 

Amounts from 2007 Sample
Appendix I: Briefing Slides

Page 17 GAO-12-794 International Taxation

Annual Report Data in the Sample Was Not 

Representative of the FCDCs’ Foreign-Controlled 

Corporate Groups

• As figure 1 shows, of the 16 foreign ultimate owners that broke out U.S. 

sales, there were 6 foreign corporations that had at least 50 percent of 

worldwide sales in the United States.

• Annual reports did not provide sufficient data for the sample of FCDCs 

to be representative of all large foreign-controlled domestic 

corporations. Too few foreign ultimate owners had publicly available 

annual reports, and of those that did, too few broke out U.S. sales 

separately.

• An additional limitation to this analysis is that differences in accounting 

standards and methods across countries may make some of the 

percentages hard to compare. For example, differences in when income is 

recognized might make the percentages higher or lower.

• Because so few foreign ultimate owners broke out U.S. sales, it was not 

worthwhile to attempt to adjust for these accounting differences across 

countries.

12
Appendix I: Briefing Slides

Page 18 GAO-12-794 International Taxation

U.S. Share of Foreign Ultimate Owner’s Worldwide 

Sales from Annual Report Data

Figure 1: U.S. Sales as Percentage of Worldwide Sales for the Foreign Ultimate Owners Reporting U.S. Sales 

Separately (unadjusted for accounting differences)

13 Note: These amounts were not adjusted for accounting differences across countries.
Appendix I: Briefing Slides

Page 19 GAO-12-794 International Taxation

Sales Data from Tax Returns Are Not Reliable 

Substitutes for Missing Annual Report Sales Data

• We explored the alternative of using the FCDCs’ U.S. sales as reported on their tax returns as a substitute 

for the missing U.S. sales when these are not broken out in annual reports.

• In these cases, the U.S. share of worldwide sales would be calculated by dividing U.S. sales from 

FCDCs’ tax returns by the foreign corporate groups’ worldwide sales from annual reports.

• However, as figure 2 shows, for the 16 cases where the alternatives could be directly compared because 

the ultimate owner broke out U.S. sales on its annual report, there were some wide differences in the U.S. 

share of worldwide sales. 

• The figure shows the percentage point difference when the U.S. share of worldwide sales using 

annual report data is compared to the U.S. share using information from the FCDC’s tax return.1

• This difference (in absolute value) was 25 percent or more for 6 of the ultimate owners and for 4 of 

these, the difference was 50 percent or more.

• These differences arise from limitations which may cause the shares to be higher or lower in an 

unpredictable way such as:

• differences in accounting standards that exist across countries, differences between income 

recognized for accounting and tax purposes, differences in reporting periods for the FCDC and 

ultimate owner, and the ultimate owner not identifying consolidated subsidiaries in its annual report.

• In addition, the limitations may cause the shares to be predictably higher or lower such as when:

• the ultimate owner may own multiple FCDCs (including some not in our sample) or have U.S. sales 

not attributable to any FCDC which could cause our sample's FCDC's sales to be less than the 

worldwide group's U.S. sales, and the FCDC may have sales made outside the United States, as 

these non-U.S. sales are generally considered taxable income, which could cause the FCDC’s sales 

to be greater than the worldwide group’s U.S. sales.

14 1The percentage point difference is equal to (annual report U.S. sales/annual report worldwide sales) minus (tax return U.S. sales/annual report 

worldwide sales).
Appendix I: Briefing Slides

Page 20 GAO-12-794 International Taxation

Comparison of the U.S. Share of Worldwide Sales 

Using Annual Report and Tax Return Data

Figure 2: U.S. Shares of Ultimate Owners’ Worldwide Sales from Annual Reports Minus U.S Share of Ultimate 

Owners’ Worldwide Sales from Tax Returns1 

15 1Negative differences are corporations where the FCDC’s U.S. sales on its tax return are greater than the ultimate owner’s U.S. sales on its annual 

report.
Appendix I: Briefing Slides

Page 21 GAO-12-794 International Taxation

IRS Form 5472 Cannot Be Used To Get Information 

about the U.S. Share of the Ultimate Owners’ 

Worldwide Operations

• IRS does not define “principal country(ies) where business is conducted” on the form and 

taxpayers can claim more than one country as a principal location where business is conducted. 

• Taxpayers are instructed on Form 5472 to provide the principal country or countries where 

business is conducted. 

• However, the instructions do not define “principal country(ies) where business is 

conducted” and permits taxpayers to list more than one country where business is 

conducted.

• Given these limitations of Form 5472, it is not possible to determine the percentage of 

worldwide business in a particular country or whether the business represents a majority of 

the ultimate owner’s worldwide business.

• Changes to the form in order to better identify the foreign corporations with majority 

operations in the United States would have to be assessed according to their full cost and 

benefits. The changes could impact a wide range of activities within IRS from compliance 

to returns processing.

• However, as figure 3 shows, aspects of the organizational structure can be inferred from 

information available on the Form 5472. 

• The chart shows the ultimate parties in each relationship. Intermediate parties may exist 

that complicate the structure and Form 5472 generally does not contain information on 

these intermediates. 

16
Appendix I: Briefing Slides

Page 22 GAO-12-794 International Taxation

Corporate Group Structure Based on Form 5472 Information

Figure 3: Potential Relationships between FCDCs and Related Parties1

17

1The lines indicate an ownership relationship. The chart identifies related parties as corporations for simplicity. Other types of 

entities such as partnerships may also be related parties. 
Appendix I: Briefing Slides

Page 23 GAO-12-794 International Taxation

Large FCDCs Generally Were Part of a Complex 

Worldwide Corporate Structure

• In 2008, large FCDCs had transactions with many related parties with 

different ownership relationships to the FCDC.

• As figure 4 shows, there were 971 unique large FCDCs that had 2,356

ultimate owners.1

• The FCDCs had transactions with 31,676 other members of the 

worldwide corporate group, of which 28,442 were foreign.2

18

1The ultimate owner is identified from Form 5472 as the ultimate indirect 25 percent foreign shareholder whose ownership of stock is not 

attributable to any other 25 percent foreign shareholder.

2There were 2,792 related parties that were recorded as both U.S. and foreign persons and seven related parties that did not identify their 

corporate relationship. IRS provided a formula to use for characterizing the parties that reported as both foreign and United States.
Appendix I: Briefing Slides

Page 24 GAO-12-794 International Taxation

Corporate Group Structure with Number of Related Parties in 

2008

Figure 4: Number of Related Parties Having Transactions with Large FCDCs in 20081

19 1The organizational chart shows the number of related parties, identified as foreign or U.S. persons, with reportable transactions between the corporate entities as shown in figure 3. However, the ultimate owners include both foreign and U.S. persons—2,341 were identified as foreign and 

15 as United States. These descriptions are derived from Form 5472, Section III. Data are taken from the 2008 5472 SOI sample file for large FCDCs. 
Appendix I: Briefing Slides

Page 25 GAO-12-794 International Taxation (450918)

20

Lack of Basic Information Makes Determining How the 

Corporate Groups Became Foreign-Owned Infeasible

• The absence of basic information about foreign-controlled corporate groups with the majority of 

their operations in the United States makes describing how they came to adopt such a structure 

infeasible.

• In our sample, annual reports did not generally provide the method used by the FCDCs to 

become foreign-owned.

• Studies show that foreign ownership can occur in a number of ways, such as: 

• inversions by corporations reincorporating or restructuring in foreign countries,

• takeovers or mergers by foreign corporations,

• foreign corporations with U.S. subsidiaries incorporating overseas at the onset, or

• foreign corporations expanding their operations and establishing new subsidiaries in the 

United States.

• However, since there is no basic information about these foreign-controlled corporate groups, 

there is no way to determine how often they may choose these different ways to become foreignowned.

• As in the case of identifying these corporations through a revision of IRS’s Form 5472, the 

benefits of obtaining a better understanding of how they came to be organized as they are would 

have to be weighed against the cost of collecting this information. 
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