The Income-tax Act is proposed to be substi-tuted by the New Direct Taxes Code (DTC). The new DTC contains provision rel-ating to Controlled Foreign Corporates (CFC).

The revised discussion paper on the DTC provides for the objective of the introduction of the CFC provisions as under:

As an anti-avoidance mea-sure, in line with internati-onally accepted practices, it is also proposed to introd-uce Controlled Foreign Cor-poration provisions so as to provide that passive income earned by a foreign company which is controlled directly or indirectly by a resident in India, and where such income is not distributed to sharehol-ders resulting in deferral of taxes, shall be deemed to have been distributed. Consequently, it would be taxable in India in the hands of resident shareholders as dividend received from the foreign company Controlled Foreign Company has been defined in clause 5 of the Twentieth schedule to mean a company which satisfies all the following conditions:

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