(1) Subsection (2) applies if—
(a) an asset or risk is included in the relevant assets and risks,
(b) the SPFs which are relevant to the economic ownership of the asset, or the assumption and management of the risk, are wholly or partly UK SPFs as determined at step 4 in section 371DB(1), and
(c) as a result of that determination, an amount is included in the provisional Chapter 4 profits.
(2) The amount is to be excluded from the provisional Chapter 4 profits if—
(a) the net economic value to the CFC group which results from the holding of the asset, or the bearing of the risk, exceeds what that value would have been had the asset been held, or the risk been borne, solely by UK resident companies connected with the CFC, and
(b) the relevant non-tax value is a substantial proportion of the excess value mentioned in paragraph (a).
(3) “Net economic value” does not include any value which derives (directly or indirectly) from the reduction or elimination of any liability of any person to tax or duty imposed under the law of any territory outside the United Kingdom.
(4) “The relevant non-tax value” is the excess value mentioned in subsection (2)(a) so far as it does not derive (directly or indirectly) from the reduction or elimination of any liability of any person to tax or duty imposed under the law of the United Kingdom.
(5) Subsection (6) applies if—
(a) there are SPFs which are relevant to the economic ownership of a number of assets, or the assumption and management of a number of risks, included in the relevant assets and risks, and
(b) it is not reasonably practicable to separate those assets or risks for the purpose of determining the extent to which the SPFs are relevant to the economic ownership of each of those assets, or the assumption and management of each of those risks, separately.
(6) In subsections (1) and (2) references to an asset or risk are to be read as references to those assets or risks taken together.
(1) Subsection (2) applies if—
(a) an asset or risk is included in the relevant assets and risks,
(b) the SPFs which are relevant to the economic ownership of the asset, or the assumption and management of the risk, are wholly or partly UK SPFs as determined at step 4 in section 371DB(1),
(c) as a result of that determination, an amount is included in the provisional Chapter 4 profits, and
(d) the UK SPFs are carried out by companies connected with the CFC under arrangements made between the CFC and those companies.
(2) The amount is to be excluded from the provisional Chapter 4 profits if it is reasonable to suppose that, were the SPFs which are UK SPFs not to be carried out by companies connected with the CFC, the CFC would enter into arrangements with companies not connected with the CFC which—
(a) would be structured in the same way as the arrangements mentioned in subsection (1)(d), and
(b) would, in relation to the CFC's business, have the same commercial effect as those arrangements.
(3) Subsection (4) applies if—
(a) there are SPFs which are relevant to the economic ownership of a number of assets, or the assumption and management of a number of risks, included in the relevant assets and risks, and
(b) it is not reasonably practicable to separate those assets or risks for the purpose of determining the extent to which the SPFs are relevant to the economic ownership of each of those assets, or the assumption and management of each of those risks, separately.
(4) In subsection (1) references to an asset or risk are to be read as references to those assets or risks taken together.
(1) All trading profits are to be excluded from the provisional Chapter 4 profits if the following conditions are met—
(a) the business premises condition (see section 371DG),
(b) the income condition (see section 371DH),
(c) the management expenditure condition (see section 371DI),
(d) the IP condition (see section 371DJ), and
(e) the export of goods condition (see section 371DK).
(2) Trading profits are also to be excluded from the provisional Chapter 4 profits in accordance with section 371DI(7) and (8) (so far as applicable).
(3) This section is subject to section 371DL (anti-avoidance).
(1) This section applies for the purposes of section 371DF(1)(a).
(2) The business premises condition is met if, at all times during the accounting period, the CFC has in the territory in which it is resident for the accounting period premises—
(a) which are, or are intended to be, occupied and used with a reasonable degree of permanence, and
(b) from which the CFC's activities in that territory are wholly or mainly carried on.
(3) “Premises” means—
(a) an office, shop, factory or other building or part of a building,
(b) a mine, an oil or gas well, a quarry or other place of extraction of natural resources, or
(c) a building site or the site of a construction or installation project, but only if the building work or project has a duration of at least 12 months.
(1) This section applies for the purposes of section 371DF(1)(b).
(2) The income condition is met if no more than 20% of the CFC's relevant trading income derives (directly or indirectly) from—
(a) UK resident persons, or
(b) UK permanent establishments of non-UK resident companies.
(3) For the purposes of subsection (2) the CFC's “relevant trading income” is its trading income, excluding any income arising from the sale in the United Kingdom of goods produced by the CFC in the territory in which it is resident for the accounting period.
(4) Subsection (5) applies instead of subsection (2) if, at any time during the accounting period, the CFC's main business is banking business in relation to which the CFC is regulated in the territory in which it is resident for the accounting period.
(5) The income condition is met if the CFC's relevant UK trading income is no more than 10% of the CFC's trading income.
(6) The CFC's “relevant UK trading income” is its trading income so far as it derives (directly or indirectly) from—
(a) UK resident persons, or
(b) UK permanent establishments of non-UK resident companies,
but excluding interest received from UK resident companies which are connected or associated with the CFC.
(7) Neither subsection (2)(a) nor subsection (6)(a) covers income deriving (directly or indirectly) from a UK resident company if—
(a) the company has made an election under section 18A of CTA 2009 (exemption for profits or losses of foreign permanent establishments), and
(b) an expense corresponding to the income is brought into account for the purpose of determining any exemption adjustment in relation to the company under that section.
(1) This section applies for the purposes of section 371DF(1)(c).
(2) The management expenditure condition is met if the UK related management expenditure is no more than 20% of the total related management expenditure.
(3) “The total related management expenditure” is the total of the following expenditure incurred during the accounting period by the CFC—
(a) expenditure incurred in the employment of any member of the CFC's staff who carries out relevant management functions,
(b) expenditure incurred in the engagement (directly or indirectly) of any individual who is not a member of the CFC's staff but who carries out relevant management functions in consequence of an arrangement between the individual and the CFC, and
(c) expenditure incurred in the engagement (directly or indirectly) of any company related to the CFC so far as the expenditure represents expenditure incurred by the related company in—
(i) the employment of any member of the related company's staff who carries out relevant management functions, or
(ii) the engagement by the related company (directly or indirectly) of any individual who is not a member of the related company's staff but who carries out relevant management functions in consequence of an arrangement between the individual and the related company.
(4) “The UK related management expenditure” is the total related management expenditure so far as it relates to members of staff or other individuals who carry out relevant management functions in the United Kingdom.
(5) A person carries out a “relevant management function” if the person manages or controls any assets or risks included in the relevant assets and risks.
(6) This covers (for example) a person who formulates plans or makes decisions in relation to—
(a) the acquisition, creation, development or exploitation of such assets, or
(b) the taking on, or bearing, of such risks.
(7) Subsection (8) applies if—
(a) the conditions mentioned in section 371DF(1)(a), (b), (d) and (e) are met but the management expenditure condition is not met,
(b) there is an asset or risk which is included in the relevant assets and risks and to which any part of the total related management expenditure relates,
(c) the 50% condition is met in relation to that asset or risk, and
(d) trading profits arising from that asset or risk are included in the provisional Chapter 4 profits.
(8) The trading profits are to be excluded from the provisional Chapter 4 profits.
(9) The 50% condition is met in relation to an asset or risk if the UK related management expenditure so far as relating to the asset or risk is no more than 50% of the total related management expenditure so far as relating to the asset or risk.
(10) Subsection (11) applies if—
(a) any part of the total related management expenditure relates to a number of assets or risks included in the relevant assets and risks, and
(b) it is not reasonably practicable to separate those assets or risks for the purpose of determining the extent to which the total related management expenditure relates to each of those assets or risks separately.
(11) Subsections (7) to (9) apply in relation to those assets or risks taken together and references to an asset or risk are to be read accordingly.
(1) This section applies for the purposes of section 371DF(1)(d).
(2) The IP condition is met unless—
(a) the CFC's assumed total profits include amounts arising from intellectual property held by the CFC (“the exploited IP”),
(b) all or parts of the exploited IP were—
(i) transferred (directly or indirectly) to the CFC by persons related to the CFC at times during the relevant period, or
(ii) otherwise derived (directly or indirectly) at times during that period out of or from intellectual property held at times during that period by persons related to the CFC,
(c) as a result of those transfers or other derivations, the value of the intellectual property held by those persons related to the CFC, taken together, has been significantly reduced from what it would otherwise have been, and
(d) if only parts of the exploited IP were so transferred or derived, the significance condition is met.
(3) The significance condition is met if—
(a) the parts of the exploited IP (“the UK derived IP”) which were transferred or otherwise derived as mentioned in subsection (2)(b) are, taken together, a significant part of the exploited IP, or
(b) as a result of the transfers or other derivations of the UK derived IP, the CFC's assumed total profits are significantly higher than what they would otherwise have been.
(4) In relation to a non-UK resident person who is related to the CFC, in this section references to the transfer or holding of intellectual property by a person related to the CFC are limited to, as the case may be—
(a) the transfer of intellectual property which before the transfer was held by the non-UK resident person (wholly or partly) for the purposes of a permanent establishment which the person has in the United Kingdom, or
(b) the holding of intellectual property by the non-UK resident person (wholly or partly) for those purposes.
(5) “The relevant period” means the period covering the accounting period and the 6 years before the accounting period.
371DK Exclusion: trading profits (export of goods condition)
(1) This section applies for the purposes of section 371DF(1)(e).
(2) The export of goods condition is met if no more than 20% of the CFC's trading income arises from goods exported from the United Kingdom, excluding goods exported from the United Kingdom to the territory in which the CFC is resident for the accounting period.
(1) This section applies if—
(a) a condition mentioned in section 371DF(1) is met, or
(b) the 50% condition mentioned in section 371DI is met in relation to an asset or risk (or a number of assets or risks taken together),
but it is reasonable to suppose that that would not be the case apart from an arrangement falling within subsection (3).
(2) The condition is to be taken not to be met or (as the case may be) not to be met in relation to the asset or risk (or the assets or risks taken together).
(3) An arrangement falls within this subsection if—
(a) the arrangement involves the CFC group organising (or reorganising) a significant part of its business in a particular way, and
(b) the main purpose, or one of the main purposes, of that organising (or reorganising) is to secure that—
(i) one or more of the conditions mentioned in section 371DF(1) are met, or
(ii) the 50% condition mentioned in section 371DI is met in relation to one or more assets or risks.
(1) The CFC's profits falling within this Chapter for the purposes of step 2 in section 371BB(1) (the CFC charge gateway) are its non-trading finance profits so far as they fall within any of sections 371EB to 371EE.
(2) In this Chapter references to the CFC's non-trading finance profits are to be read in accordance with section 371CB(2) and, so far as applicable, section 371CB(8).
(1) To determine the extent to which the CFC's non-trading finance profits fall within this section, take steps 1 to 5 and 7 in section 371DB(1) as if references in section 371DB to the CFC's assumed total profits were references to its non-trading finance profits.
(2) Non-trading finance profits fall within this section so far as they would be included in the provisional Chapter 4 profits as determined on the basis mentioned in subsection (1).
(1) Non-trading finance profits fall within this section so far as they arise from relevant UK funds or other assets.
(2) Subsection (3) applies in relation to any profits which (apart from subsection (3)) would fall within this section if—
(a) an amount of expenditure incurred by the CFC in managing the relevant UK funds or other assets itself was brought into account in calculating the profits, and
(b) it is reasonable to suppose that the amount of expenditure is less than the fee which a company not connected with the CFC would charge the CFC for carrying out the same management activities.
(3) There is to be deducted from the profits an amount representing what it is reasonable to suppose the difference between the amount of expenditure and the fee would be.
(4) “Relevant UK funds or other assets” means—
(a) funds or other assets which represent, or derive (directly or indirectly) from, any capital contribution to the CFC made (directly or indirectly) by a UK connected company (whether in relation to an issue of shares in the CFC or otherwise),
(b) funds or other assets which represent, or derive (directly or indirectly) from, any amounts included in the CFC's chargeable profits for any earlier accounting period in relation to which the CFC charge is charged,
(c) funds or other assets which represent, or derive (directly or indirectly) from, any amounts which, by virtue of section 174 (transfer pricing: claims by disadvantaged person), are left out of account in determining the CFC's assumed total profits for the accounting period or any earlier accounting period, or
(d) funds or other assets—
(i) which represent, or derive (directly or indirectly) from, any funds or other assets received by the CFC (directly or indirectly) from a UK connected company, and
(ii) which are not covered by paragraphs (a) to (c).
(5) In subsection (4)(d)(i) the reference to funds or other assets received by the CFC does not include funds or other assets received—
(a) in exchange for goods or services provided by the CFC, or
(b) by way of a loan.
(6) “UK connected company” means—
(a) a UK resident company connected with the CFC, or
(b) a non-UK resident company connected with the CFC acting through a UK permanent establishment.
371ED Arrangements in lieu of dividends etc to UK resident companies etc
(1) Non-trading finance profits fall within this section so far as they arise from an arrangement ... in relation to which the following condition is met.
(2) The condition is that—
(a) the arrangement is made by the CFC (directly or indirectly)—
(i) with a UK resident company connected with the CFC, or
(ii) with a non-UK resident company connected with the CFC for the purposes of a UK permanent establishment of the non-UK resident company, and
(b) it is reasonable to suppose—
(i) that the arrangement is made as an alternative to the CFC paying dividends or making any other distribution to the other company (directly or indirectly), and
(ii) that the main reason, or one of the main reasons, for that is a reason relating to a liability, or potential liability, of any person to tax or duty imposed under the law of any territory.
(1) Non-trading finance profits fall within this section so far as they arise from a relevant finance lease in relation to which the following condition is met.
(2) The condition is that—
(a) the lease is made by the CFC (directly or indirectly)—
(i) with a UK resident company connected with the CFC, or
(ii) with a non-UK resident company connected with the CFC for the purposes of a UK permanent establishment of the non-UK resident company, and
(b) it is reasonable to suppose—
(i) that the lease is made as an alternative to the other company purchasing (directly or indirectly) the asset (“the relevant asset”) which is the subject of the lease or making (directly or indirectly) an arrangement which would fall within subsection (3) , and
(ii) that the main reason, or one of the main reasons, for that is a reason relating to a liability, or potential liability, of any person to tax or duty imposed under the law of any territory.
(3) An arrangement would fall within this subsection if—
(a) the arrangement would meet one or both of the following requirements—
(i) it would not be a relevant finance lease;
(ii) it would not involve the CFC, and
(b) under the arrangement the other company would (directly or indirectly) purchase rights to use the relevant asset.
(1) Take the following steps to determine the CFC's profits falling within this Chapter for the purposes of step 2 in section 371BB(1) (the CFC charge gateway).
This is subject to regulations under section 371FD or 371FE.
Step 1 Determine if, during the accounting period, the CFC's free capital exceeds what it is reasonable to suppose its free capital would be were it a company which is not the 51% subsidiary of any other company. If there is excess free capital, “the step 1 amount” is—
the excess free capital, or
if less, the CFC's free capital so far as deriving (directly or indirectly) from UK connected capital contributions.
Step 2 This step applies only if the CFC carries on insurance business during the accounting period; if it does not, go straight to step 3. Determine if, during the accounting period when the CFC is carrying on insurance business, the CFC's free assets exceeds what it is reasonable to suppose its free assets would be were it a company which is not the 51% subsidiary of any other company. If there is excess free assets, “the step 2 amount” is—
the excess free assets, or
if less, the CFC's free assets so far as deriving (directly or indirectly) from UK connected capital contributions.
Step 3 If no excesses are determined at steps 1 and 2, no profits fall within this Chapter. Otherwise, the profits falling within this Chapter are the CFC's trading finance profits so far as it is reasonable to suppose that those profits arise from the investment or other use of the step 1 amount or the step 2 amount (or both
(2) For the purposes of step 1 in subsection (1) the CFC's “free capital” is the funding it has for its business so far as the funding does not give rise to debits which are brought into account in determining the CFC's non-trading finance profits or trading finance profits.
(3) For the purposes of step 2 in subsection (1) the CFC's “free assets” is the amount by which the value of its assets exceeds its loan capital.
(4) Subsections (2) and (3) are subject to sections 371FB and 371FC and subsection (3) is also subject to subsection (6).
(5) Subsection (6) applies if—
(a) the CFC, acting outside its insurance business, gives a guarantee against losses of an insurance business of another company which is connected with the CFC,
(b) the guarantee is necessary for the purpose of meeting regulatory requirements applicable to the other company's insurance business,
(c) in consequence of having given the guarantee, the CFC is required by regulatory requirements applicable to its insurance business to hold more assets than it would otherwise be required to hold, and
(d) during the accounting period, the CFC holds assets solely for the purpose of meeting that requirement for more assets.
(6) The value of the assets held by the CFC as mentioned in subsection (5)(d) is to be deducted from the CFC's free assets.
(7) For the purposes of this section the “value” of an asset is the amount which it is reasonable to suppose the CFC would obtain for the transfer of all the CFC's rights in respect of the asset from a person not connected with the CFC.
(1) Subsection (2) applies if, during the CFC's accounting period, the CFC is the ultimate debtor in relation to a qualifying loan relationship (within the meaning of Chapter 9) of another CFC (“the creditor CFC”).
(2) E% of the principal outstanding during the CFC's accounting period on the loan which is the subject of the qualifying loan relationship is to be added to the CFC's free capital or free assets (as the case may be).
(3) “E%” is given by the following formula—
100 % × EP P
where—
EP is the total amount of the profits of the qualifying loan relationship which are exempt, and
P is the total amount of the profits of the qualifying loan relationship.
(4) For the purposes of subsection (3)—
(a) references to the profits of the qualifying loan relationship are to the profits of the qualifying loan relationship for accounting periods of the creditor CFC which fall wholly or partly in the CFC's accounting period,
(b) the profits of the qualifying loan relationship for an accounting period of the creditor CFC are to be determined in accordance with Chapter 9,
(c) the steps in subsection (5) are to be taken to determine the amount of the profits of the qualifying loan relationship for an accounting period of the creditor CFC which are “exempt”, and
(d) the profits of the qualifying loan relationship for an accounting period of the creditor CFC which falls only partly in the CFC's accounting period, and the amount of those profits which are exempt, are to be apportioned between—
(i) the part of the creditor CFC's accounting period which falls in the CFC's accounting period, and
(ii) the part which does not,
with only those profits, and the amount of exempt profits, apportioned to the part mentioned in sub-paragraph (i) being included in P or EP (as the case may be).
(5) Here are the steps referred to in subsection (4)(c).
The steps are to be taken separately in relation to each chargeable company which makes a claim under Chapter 9 in relation to the creditor CFC's accounting period.
The amount of the profits of the qualifying loan relationship for the creditor CFC's accounting period which are exempt is the total of the amounts given by step 2.
Step 1 Determine the amount of the profits of the qualifying loan relationship for the accounting period which, in the case of the chargeable company, are exempt under Chapter 9.
Step 2 Multiply the amount determined at step 1 by P% (as defined in section 371BC(3), ignoring sections 371BG(3)(a) and 371BH(3)(b)).
371FC Loans from foreign permanent establishments of UK resident companies
(1) Subsection (2) applies if—
(a) there is a company (“C”) which has made an election under section 18A of CTA 2009 (exemption for profits or losses of foreign permanent establishments),
(b) during a relevant accounting period of C which begins on or after 1 January 2013, C has a creditor relationship which, applying the assumptions set out in section 18H(3) of CTA 2009 in relation to C for the relevant accounting period, would be a qualifying loan relationship (within the meaning of Chapter 9 of this Part) of C in relation to which the CFC would be the ultimate debtor,
(c) in the application of section 18H(2) of CTA 2009 for the relevant accounting period, C makes a claim under Chapter 9 of this Part (as applied by section 18H(2)), and
(d) the relevant accounting period falls wholly or partly in the CFC's accounting period.
(2) 75% of the principal outstanding during the CFC's accounting period on the loan which is the subject of the qualifying loan relationship is to be added to the CFC's free capital or free assets (as the case may be).
(3) Terms used in this section which are defined in section 18A of CTA 2009 have the meaning given by that section.
(1) The HMRC Commissioners may by regulations provide that, if specified conditions are met, step 3 in section 371FA(1) is not to apply in relation to the CFC's trading finance profits so far as they arise from banking business, or banking business of a specified description, carried on by the CFC.
(2) Regulations under subsection (1) may (in particular) make provision by reference to—
(a) the territory in which a CFC is resident or any territory in which its banking business is regulated or carried on, or
(b) the regulatory requirements imposed from time to time in any territory in relation to banking business.
(1) The HMRC Commissioners may by regulations provide that, if specified conditions are met, step 3 in section 371FA(1) is not to apply in relation to the CFC's trading finance profits so far as they arise from insurance business, or insurance business of a specified description, carried on by the CFC.
(2) In subsection (1) “insurance business” does not include insurance business so far as consisting of the effecting or carrying out of contracts of insurance covered by section 371GA(2) (UK insurance contracts), including the investment of premiums received from such contracts.
(3) Regulations under subsection (1) may (in particular) make provision by reference to—
(a) the territory in which a CFC is resident or any territory in which its insurance business is regulated or carried on, or
(b) the regulatory requirements imposed from time to time in any territory in relation to insurance business.
(1) The CFC's profits falling within this Chapter for the purposes of step 2 in section 371BB(1) (the CFC charge gateway) are any amounts included in its assumed total profits so far as they—
(a) arise from the CFC's insurance business,
(b) fall within subsection (2), and
(c) fall within subsection (7) where applicable.
(2) An amount falls within this subsection if it derives (directly or indirectly) from—
(a) a contract of insurance which is entered into with—
(i) a UK resident company connected with the CFC, or
(ii) a non-UK resident company connected with the CFC acting through a UK permanent establishment, or
(b) a contract of insurance which—
(i) is entered into with a UK resident person, and
(ii) is linked (directly or indirectly) to the provision of goods or services to the UK resident person by a UK connected company.
(3) In subsection (2)(b)(ii)—
“services” does not include services provided as part of insurance business, and
“UK connected company” means—
a UK resident company connected with the CFC, or
a non-UK resident company connected with the CFC acting through a UK permanent establishment.
(4) Subsection (2)(a)(i) does not cover a premium paid under a contract of insurance if—
(a) the UK resident company has made an election under section 18A of CTA 2009 (exemption for profits or losses of foreign permanent establishments), and
(b) the premium is wholly brought into account for the purpose of determining any exemption adjustment in relation to the company under that section.
(5) Subsection (2)(a) covers a contract of reinsurance only so far as the original contract of insurance would fall within subsection (2)(a).
(6) Subsection (7) applies in relation to an amount if—
(a) the CFC is resident in an EEA state for the accounting period, and
(b) the amount does not arise from the activities of a permanent establishment which the CFC has in a territory which is not an EEA state.
(7) An amount falls within this subsection so far as it derives (directly or indirectly) from a contract of insurance if—
(a) the insured has no significant UK non-tax reason for entering into the contract of insurance, or
(b) if the contract of insurance is a contract of reinsurance, the original insured has no significant UK non-tax reason for entering into the original contract of insurance.
(8) “UK non-tax reason” means a reason other than one relating to a liability, or potential liability, of any person to tax or duty imposed under the law of the United Kingdom.
(9) In this section “original contract of insurance”, in relation to a contract of reinsurance which is one in a chain of contracts of reinsurance, means the original contract of insurance reinsured by the first contract in the chain; and in subsection (7)(b) the reference to the original insured is to be read accordingly.
(1) The CFC's profits falling within this Chapter for the purposes of step 2 in section 371BB(1) (the CFC charge gateway) are any amounts included in its assumed total profits which are not also included in the CFC's relevant profits amount.
(2) The CFC's “relevant profits amount” is what the relevant profits amount would be for the purposes of Chapter 3A of Part 2 of CTA 2009 (see section 18A(6) of that Act) in relation to the CFC were that amount to be determined as if—
(a) the CFC were a permanent establishment in a territory outside the United Kingdom of the UK resident company mentioned in section 371CG(2)(b) or the UK resident bank mentioned in section 371CG(3), and
(b) the CFC's accounting period were a relevant accounting period of that UK resident company or UK resident bank for the purposes of that Chapter.
(1) This Chapter applies if—
(a) apart from this Chapter, Chapter 5 (non-trading finance profits) would apply for a CFC's accounting period,
(b) the CFC's non-trading finance profits include qualifying loan relationship profits, and
(c) the business premises condition set out in section 371DG is met.
(2) A chargeable company (“company C”) in relation to the accounting period may make a claim to an officer of Revenue and Customs for step 2 in section 371BB(1) (the CFC charge gateway) to be taken, in the case of company C only, subject to this Chapter.
(3) If company C makes a claim, in the case of company C only, the CFC's qualifying loan relationship profits pass through the CFC charge gateway so far as (and only so far as) they are not exempt under this Chapter.
(4) The CFC's “qualifying loan relationship profits” are so much of the profits of all its qualifying loan relationships taken together as are non-trading finance profits which—
(a) fall within section 371EC (capital investment from the UK), and
(b) do not fall within section 371EB (UK activities).
(5) The extent to which those profits are “exempt” is to be determined—
(a) firstly, by applying either section 371IB or section 371ID to each of the CFC's qualifying loan relationships, and
(b) secondly, by applying section 371IE (if relevant).
(6) Section 371IF sets out how to determine the profits of a qualifying loan relationship.
(7) Sections 371IG to 371II define “qualifying loan relationship” etc.
(8) Section 371IJ contains provision about claims under this Chapter.
(9) In this Chapter references to the CFC's non-trading finance profits are to those profits excluding any profits—
(a) falling within section 371CB(3) or (4) or Chapter 8 (solo consolidation), or
(b) arising from a relevant finance lease.
(10) In this Chapter—
(a) “loan relationship” has the meaning given by section 302(1) of CTA 2009 (and does not include anything which, although not falling within section 302(1), is treated for any purpose as if it were a loan relationship), and
(b) other terms used which are defined in Part 5 of CTA 2009 are to be read accordingly.
(11) See section 371CB(8) which deals with the interaction between this Chapter and section 371CB and Chapter 5 in the case of a chargeable company which makes a claim under this Chapter.
(1) This section applies to a qualifying loan relationship if company C's claim under this Chapter states that this section is to apply to the qualifying loan relationship.
(2) X% of the profits of the qualifying loan relationship are exempt if company C's claim establishes—
(a) that, at all times during the relevant period, at least X% of the principal outstanding on the relevant loan (as that may vary from time to time during the relevant period) is funded by the CFC wholly out of qualifying resources, and
(b) that the ultimate debtor in relation to the qualifying loan relationship (see section 371IG(2) to (7)) is resident at all times during the relevant period in one territory only and that its territory of residence does not change at any time during the relevant period.
(3) “X%” is the percentage specified in company C's claim for the purposes of this section in relation to the qualifying loan relationship (which may be 100%).
(4) “The relevant period” means—
(a) the accounting period, or
(b) if for any part of the accounting period no principal is outstanding on the relevant loan, the part of the accounting period during which there is principal outstanding.
(5) “The relevant loan” means the loan which is the subject of the qualifying loan relationship.
(6) “Qualifying resources” means—
(a) profits of the CFC's business so far as it consists of the making of loans to relevant members of the CFC group which are used solely for the purposes of the business of the CFC group in the relevant territory, or
(b) funds or other assets received by the CFC in relation to shares held by the CFC in, or issued by the CFC to, members of the CFC group.
(7) Funds or other assets received by the CFC fall within subsection (6)(b) only so far as they derive (directly or indirectly) from—
(a) profits of the business of the CFC group in the relevant territory,
(b) the qualifying value of relevant pre-acquisition funds or other assets (see section 371IC), or
(c) an issue of shares which meets the following requirements—
(i) the shares are shares in a member of the CFC group (“the parent member”) which is not the 75% subsidiary of any company,
(ii) the shares are ordinary shares which are not redeemable, and
(iii) the shares are issued to persons who are not members of the CFC group.
(8) Subsection (9) applies if the qualifying loan relationship is made under, or is otherwise connected (directly or indirectly) with, an arrangement under which a member of the CFC group incurs a debt in the United Kingdom to—
(a) a non-UK resident person, or
(b) a UK resident person who is not a member of the CFC group.
(9) It is to be assumed for the purposes of subsection (2) that, at all times during the relevant period, the amount of funds or other assets—
(a) out of which the principal outstanding on the relevant loan is funded by the CFC, and
(b) which are not qualifying resources,
is no less than the amount of the debt mentioned in subsection (8).
(9A) Subsection (9) does not apply if the debt incurred by the member of the CFC group as mentioned in subsection (8) represents the principal on a loan made to the member to which subsection (9B) or (9D) applies.
(9B) This subsection applies to a loan if the member repays it within 48 hours of the loan being made.
(9C) But subsection (9B) does not apply to a loan if the repayment of the loan within the 48 hours occurs under, or is connected (directly or indirectly) with, an arrangement the main purpose, or one of the main purposes, of which is to ensure that subsection (9) does not apply because of—
(a) the loan, or
(b) any other debt which a member of the CFC group incurs (or is expected to incur) in the United Kingdom.
(9D) This subsection applies to a loan if—
(a) there is an issue of shares which meets the requirements of subsection (7)(c)(i) to (iii),
(b) the loan was made before the issue of shares but with the expectation that it would be repaid by the member out of funds deriving (directly or indirectly) from the issue of shares,
(c) the loan is repaid by the member out of such funds within the period of 6 months beginning with the day on which the loan was made, and
(d) the loan—
(i) was made by a person who was not a member of the CFC group, and
(ii) was not made (wholly or partly nor directly or indirectly) out of funds or other assets provided by a member of the CFC group.
(10) For the purposes of this section and section 371IC—
(a) subject to subsections (11) and (12), “the CFC group”, as at any time, means the CFC taken together with the companies with which it is connected at that time,
(b) a member of the CFC group is “relevant” if it is resident in the relevant territory and no other territory,
(c) “the relevant territory” means the territory of residence of the ultimate debtor mentioned in subsection (2)(b),
(d) references to the business of the CFC group in the relevant territory do not include the making of loans to persons resident outside the relevant territory,
(e) references to the profits of the business of the CFC group in the relevant territory do not include—
(i) profits arising (directly or indirectly) from funds or other assets received by relevant members of the CFC group in relation to shares held by them in members of the CFC group which are not relevant members, or
(ii) so far as not covered by sub-paragraph (i), profits arising (directly or indirectly) from the business of the CFC group in any territory outside the relevant territory, and
(f) section 931U of CTA 2009 (definitions of “ordinary share” and “redeemable”) applies as it applies for the purposes of Part 9A of CTA 2009 (company distributions).
(11) If the CFC is controlled by one UK resident company only (“the controller”), in relation to any time before the CFC came to be controlled by the controller, except in subsection (6), references to the CFC group include references to the controller taken together with any companies with which it is connected at that time.
(12) If the CFC is controlled by two or more UK resident companies which are all connected with each other (“the controllers”), in relation to any time—
(a) before which the CFC came to be controlled by the controllers, and
(b) at which the controllers (or those of the controllers which exist at that time) are all connected with each other,
except in subsection (6), references to the CFC group include references to the controllers (or those of the controllers which exist) taken together with any other companies with which they are all connected at that time.
371IC What is the “qualifying value” of “relevant pre-acquisition funds or other assets”?
(1) This section applies for the purposes of section 371IB(7)(b).
(2) It applies if—
(a) a member of the CFC group acquires shares in a company (“the target company”) from persons who are not members of that group (“the unconnected persons”),
(b) in consideration for the acquisition of the shares, a member of the CFC group (“the parent member”) which is not the 51% subsidiary of any company issues shares to the unconnected persons, and
(c) the value of the consideration given for the acquisition of the shares by the parent member and any other members of the CFC group represents wholly or partly the value or a part of the value of any funds or other assets held by the target company.
(3) Those funds or other assets are “relevant pre-acquisition funds or other assets” and, subject to what follows, their value or the part of their value represented by the value of the consideration is their “qualifying value”.
(4) The qualifying value is to be reduced by Y% if one or both of the following paragraphs applies—
(a) the issue of shares by the parent member to the unconnected persons represents only part of the consideration given for the acquisition of the shares in the target company;
(b) in connection with the acquisition of the shares in the target company, an extraordinary distribution is made to persons holding shares in the parent member.
(5) “Y%” is given by the following formula—
100 % × B A + B
where—
A is the value of the consideration which is in the form of the issue of shares by the parent member to the unconnected persons, and
B is, as the case may be—
the value of the consideration which is not in the form of the issue of shares by the parent member to the unconnected persons,
the value of the extraordinary distribution, or
the total of the values given by paragraphs (a) and (b).
(1) This section applies to a qualifying loan relationship if section 371IB does not apply to the qualifying loan relationship.
(2) 75% of the profits of the qualifying loan relationship are exempt.
(1) This section applies if—
(a) there are profits of qualifying loan relationships which are not exempt after sections 371IB and 371ID have been applied to each qualifying loan relationship,
(b) the relevant corporation tax accounting period (as defined in section 371BC(3)) of company C is a relevant accounting period of it in relation to a period of account of a worldwide group,
(c) the CFC's accounting period ends in that period of account, and
(d) apart from this section, the profits mentioned in paragraph (a) would be included in the chargeable profits of the CFC.
(2) In this section “the matched interest profits” means so much of the profits mentioned in subsection (1)(a) as remain after excluded credits and excluded debits are left out of account.
(3) If the aggregate net tax-interest expense of the group for the period is nil, all of the matched interest profits are exempt.
(4) Otherwise, there is a more limited exemption if the relevant proportion of the matched interest profits apportioned to C or other relevant chargeable companies exceeds the aggregate net tax-interest expense of the group for the period.
(5) For the purposes of this section “the relevant proportion of the matched interest profits apportioned to C or other relevant chargeable companies” is determined as follows.
Step 1 For each relevant chargeable company (including C) determine the percentage (P%) of the CFC's chargeable profits that are apportioned to the company under step 5 of section 371BC(1).
Step 2 For each relevant chargeable company (including C) multiply P% by the matched interest profits.
Step 3 The sum of the amounts for each company found under step 2 is “the relevant proportion of the matched interest profits apportioned to C or other relevant chargeable companies”.
(6) For the purposes of this section a company is a relevant chargeable company if the relevant corporation tax accounting period of the company is a relevant accounting period in relation to the period of account of the group.
(7) The limited exemption is given effect by treating the matched interest profits as equal to the amount found by multiplying the amount that they would otherwise be by—
E RPMIP
where—
E is the amount of the excess mentioned in subsection (4), and
RPMIP is the relevant proportion of the matched interest profits apportioned to C or other relevant chargeable companies.
(8) For the purposes of this section the aggregate net tax-interest expense of a worldwide group for a period of account is determined in accordance with Part 10 (corporate interest restriction) but without regard to debits, credits or other amounts arising from—
(a) banking business carried on by a company within the charge to corporation tax, or
(b) insurance business carried on by a company within the charge to corporation tax.
(9) For the purposes of this section—
“excluded credit” has the meaning given by section 386(3),
“excluded debit” has the meaning given by section 383(3), and
“period of account”, “relevant accounting period” and “worldwide group” have the same meanings as in Part 10.
371IF Determining the profits of a qualifying loan relationship
Take the following steps to determine the profits of a qualifying loan relationship for the purposes of this Chapter.
Step 1 Determine the credits from the qualifying loan relationship which are brought into account in determining the CFC's non-trading finance profits. The result is “the step 1 credits”.
Step 2 Determine the credits and debits which are brought into account in determining the CFC's non-trading finance profits so far as they—
are from any derivative contract or other arrangement (other than a qualifying loan relationship) entered into by the CFC as a hedge of risk in connection with the qualifying loan relationship, and
are attributable to the hedge of risk.
If the credits exceed the debits add the excess to the step 1 credits and if the debits exceed the credits subtract the deficit from the step 1 credits. The result is “the step 2 credits”.
Step 3 Allocate to the qualifying loan relationship a just and reasonable proportion of the credits from the CFC's relevant debtor relationships which are brought into account in determining the CFC's non-trading finance profits (so far as not reflected in the step 2 credits). Add the credits to the step 2 credits. The result is “the step 3 credits”. A debtor relationship of the CFC is “relevant” if the loan which is the subject of it is used by the CFC to fund the loan which is the subject of the qualifying loan relationship
Step 4 Allocate to the qualifying loan relationship a just and reasonable proportion of the credits and debits which are brought into account in determining the CFC's non-trading finance profits so far as they—
are from any derivative contract or other arrangement (other than a qualifying loan relationship or a relevant debtor relationship) entered into by the CFC as a hedge of risk in connection with a relevant debtor relationship, and
are attributable to the hedge of risk.
If the credits exceed the debits add the excess to the step 3 credits and if the debits exceed the credits subtract the deficit from the step 3 credits. The result is “the step 4 credits”.
Step 5 Allocate to the qualifying loan relationship a just and reasonable proportion of—
the debits from the CFC's loan relationships which are brought into account in determining the CFC's non-trading finance profits (so far as not reflected in the step 4 credits), and
any amounts set off under Chapter 16 or Chapter 16A of Part 5 of CTA 2009 (non-trading deficits) against amounts which, apart from the set off, would be included in the CFC's non-trading finance profits.
Reduce the step 4 credits accordingly to give the profits of the qualifying loan relationship.
(1) In this Chapter “qualifying loan relationship” means a creditor relationship of the CFC—
(a) the ultimate debtor in relation to which is a qualifying company, and
(b) which is not prevented from being a qualifying loan relationship by section 371IH.
(2) In this Chapter “the ultimate debtor”, in relation to a creditor relationship of the CFC, means the debtor in relation to the creditor relationship.
This is subject to what follows.
(3) Subsection (4) or (5) (as the case may be) applies if—
(a) there is a loan (“loan A”) which is the subject of a creditor relationship of the CFC,
(b) loan A, or a part of loan A, is made and used to fund (directly or indirectly) another loan (“loan B”) to a person (“P”), and
(c) loan B, or a part of loan B, is not made and used to fund (directly or indirectly) a further loan to any person.
(4) If all of loan A is made and used to fund (directly or indirectly) loan B, the ultimate debtor in relation to the CFC's creditor relationship mentioned in subsection (3)(a) is P.
(5) If only part of loan A is made and used to fund (directly or indirectly) loan B—
(a) that part of loan A is to be treated for the purposes of this Chapter as a separate loan giving rise to a separate creditor relationship of the CFC, and
(b) the ultimate debtor in relation to that separate creditor relationship is P.
(6) If the requirement of subsection (3)(c) is met in relation to a part of loan B only, in subsections (4) and (5) references to loan B are to be read as references to that part of loan B only.
(7) But neither subsection (4) nor subsection (5) applies if—
(a) the debtor (“D”) in relation to the CFC's creditor relationship is a qualifying company the main business of which is banking business or insurance business,
(b) the use of loan A, or the part of loan A, as mentioned in subsection (3)(b) occurs in the ordinary course of D's banking business or insurance business (as the case may be), and
(c) P is not a UK resident qualifying company.
(8) In this section “qualifying company” means a company which—
(a) is connected with the CFC, and
(b) is controlled by the UK resident person or persons who control the CFC.
371IH Exclusions from definition of “qualifying loan relationship”
(1) If the ultimate debtor in relation to a creditor relationship of the CFC is a non-UK resident company, the creditor relationship cannot be a qualifying loan relationship so long as some or all of the company's debits—
(a) are being brought into account for the purposes of Chapter 4 of Part 2 of CTA 2009 (UK permanent establishments of non-UK resident companies) in determining the company's profits which are attributable to a UK permanent establishment, or
(b) are being brought into account for the purposes of Part 3 of ITTOIA 2005 (property income) in determining the company's profits of a UK property business.
(2) If the ultimate debtor in relation to a creditor relationship of the CFC is a UK resident company, the creditor relationship can be a qualifying loan relationship only so long as—
(a) an election under section 18A of CTA 2009 (exemption for profits or losses of foreign permanent establishments) is in effect in relation to the company, and
(b) all the company's debits are being brought into account for the purpose of determining exemption adjustments in relation to the company under that section.
(3) If the ultimate debtor in relation to a creditor relationship of the CFC is another CFC, the creditor relationship cannot be a qualifying loan relationship so long as—
(a) some or all of the other CFC's debits are relevant to the application of Chapters 3 to 8 or Chapter 12 in the case of the other CFC, and
(b) as a result of that, the CFC charge is not being charged in relation to the other CFC's accounting periods or any sums charged are less than what they would otherwise have been.
(4) In subsections (1) to (3) references to the debits of the company which is the ultimate debtor in relation to a creditor relationship of the CFC are references to—
(a) the ultimate debtor's debits in relation to the loan which is the subject of the CFC's creditor relationship, or
(b) if the ultimate debtor is determined in accordance with section 371IG(4) or (5), the ultimate debtor's debits in relation to loan B.
(5) A creditor relationship of the CFC cannot be a qualifying loan relationship if it is, or is connected (directly or indirectly) to, an arrangement the main purpose, or one of the main purposes, of which is for the ultimate debtor in relation to the creditor relationship to provide (directly or indirectly) funding for—
(a) a loan to another person, or
(b) so far as not covered by paragraph (a), an arrangement intended to produce for any person a return in relation to any amount which it is reasonable to suppose would be a return by reference to the time value of that amount of money.
(6) Subsection (5) does not apply if—
(a) the main business of the ultimate debtor is banking business or insurance business, and
(b) the funding for the loan or arrangement would be provided in the ordinary course of the ultimate debtor's banking business or insurance business (as the case may be).
(7) A creditor relationship of the CFC cannot be a qualifying loan relationship if—
(a) the main business of the ultimate debtor in relation to the creditor relationship is banking business or insurance business, and
(b) the creditor relationship is, or is connected (directly or indirectly) to, an arrangement the main purpose, or one of the main purposes, of which is for the ultimate debtor to provide (directly or indirectly) funding for a loan or arrangement as mentioned in subsection (5)(a) or (b) in order to obtain a tax advantage for the ultimate debtor.
(8) A creditor relationship of the CFC cannot be a qualifying loan relationship if the loan which is the subject of the creditor relationship is made to any extent (other than a negligible one) out of funds received by the CFC (directly or indirectly)—
(a) from a relevant UK connected company other than by way of a loan, or
(b) as a result of an arrangement which gives rise to a deduction in the calculation of the profits of a trade of a relevant UK connected company (apart from the ultimate debtor) for the purposes of Part 3 of CTA 2009 (trading income).
(9) For the purposes of subsection (8) a company is “relevant UK connected” if—
(a) the company is a UK resident company connected with the CFC,
(b) the company's main business is banking business or insurance business, and
(c) the company's banking business or insurance business (as the case may be) is a trade.
(9A) Subsection (9B) applies to a creditor relationship of a CFC if—
(a) a creditor relationship (“the UK creditor relationship”) of a UK connected company is made where the debtor is a non-UK resident company connected with the UK connected company,
(b) subsequently, an arrangement (“the relevant arrangement”) is made directly or indirectly in connection with the UK creditor relationship, and
(c) the main purpose, or one of the main purposes, of the relevant arrangement is to secure that—
(i) the relevant UK credits of a UK connected company for a corporation tax accounting period of the company are lower than they would be if the relevant arrangement had not been made, or
(ii) the relevant UK debits of a UK connected company for a corporation tax accounting period of the company are greater than they would be if the relevant arrangement had not been made.
(9B) The CFC's creditor relationship cannot be a qualifying loan relationship if it is, or is connected (directly or indirectly) to, the relevant arrangement.
(9C) Subsection (9D) applies for the purposes of subsection (9A)(c)(i) and (ii) in determining what the relevant UK credits or debits of a UK connected company for a corporation tax accounting period would be if the relevant arrangement had not been made.
(9D) Assume that, at all times after the relevant time, the UK creditor relationship remains in place on the same terms as it had at the relevant time.
(9E) In subsections (9A) to (9D)—
“corporation tax accounting period” means an accounting period for corporation tax purposes,
“the relevant time” means the time immediately before—
the time when the relevant arrangement is made, or
if earlier, the time when the UK creditor relationship ends,
“relevant UK credits”, in relation to a UK connected company, means credits which the company has under Part 5 or 7 of CTA 2009,
“relevant UK debits”, in relation to a UK connected company, means debits which the company has under Part 5 or 7 of CTA 2009, and
“UK connected company” means a UK resident company which—
is connected with the CFC, or
was connected with a company with which the CFC is connected.
(10) A creditor relationship of the CFC cannot be a qualifying loan relationship if—
(a) the CFC receives relevant UK funds or other assets for the purpose of funding the loan which is the subject of the CFC's creditor relationship,
(b) the provision of the relevant UK funds or other assets is itself funded (wholly or partly and directly or indirectly) by a loan made to a UK connected company by—
(i) a non-UK resident person, or
(ii) a UK resident person who is not connected with the CFC,
(c) the relevant loan is used to any extent (other than a negligible one) to repay wholly or partly another loan made to the ultimate debtor by a person not connected with the ultimate debtor, and
(d) the events mentioned in paragraphs (a) to (c) take place under, or are otherwise connected (directly or indirectly) with, an arrangement the main purpose, or one of the main purposes, of which is to obtain a tax advantage for any person.
(11) In subsection (10)—
(a) “relevant UK funds or other assets” and “UK connected company” have the same meaning as in section 371EC, and
(b) in paragraph (c) “the relevant loan” means—
(i) the loan which is the subject of the CFC's creditor relationship, or
(ii) if the ultimate debtor is determined in accordance with section 371IG(4) or (5), loan B.
(12) In subsections (4)(b) and (11)(b)(ii) references to loan B do not include any part of loan B—
(a) which loan A is not made and used to fund, or
(b) in relation to which the requirement of section 371IG(3)(c) is not met.
The HMRC Commissioners may by regulations amend this Chapter—
(a) so as to amend the definition of “qualifying resources” for the purposes of section 371IB, or
(b) so as to amend the definition of “qualifying loan relationship” or “ultimate debtor” for the purposes of this Chapter.
(1) A claim under this Chapter must be made by being included in company C's company tax return for the relevant corporation tax accounting period (as defined in section 371BC(3)).
(2) The claim may be included in the return originally made or by amendment.
(3) The claim may be amended or withdrawn by company C only by amending the return.
(4) A claim under this Chapter may be made, amended or withdrawn at any time up to whichever is the last of the following dates—
(a) the first anniversary of the filing date for company C's company tax return for the relevant corporation tax accounting period under paragraph 14 of Schedule 18 to FA 1998;
(b) if notice of enquiry is given into that return under paragraph 24 of that Schedule, 30 days after the enquiry is completed so far as relating to the matters to which the claim relates;
(c) if after such an enquiry an officer of Revenue and Customs amends the return under paragraph 34(2) of that Schedule, 30 days after notice of the amendment is issued;
(d) if an appeal is brought against such an amendment, 30 days after the date on which the appeal is finally determined.
(5) A claim under this Chapter may be made, amended or withdrawn at a later time if an officer of Revenue and Customs allows it.
(6) In any event, if after a claim under this Chapter is made there is a change of circumstances affecting the tested income amount or the aggregate net tax-interest expense that is mentioned in section 371IE, the claim may be amended at any time within the period of 12 months after the change of circumstances for the purpose of taking account of the change of circumstances.
(7) The time limits otherwise applicable to amendment of a company tax return do not apply to an amendment to the extent that it makes, amends or withdraws a claim under this Chapter within the time allowed by or under this section.
(8) In subsection (4) references to an enquiry into a company tax return do not include an enquiry restricted to a previous amendment making, amending or withdrawing a claim under this Chapter.
(9) An enquiry is so restricted if—
(a) the scope of the enquiry is limited as mentioned in paragraph 25(2) of Schedule 18 to FA 1998, and
(b) the amendment giving rise to the enquiry consisted of the making, amending or withdrawing of a claim under this Chapter.
(1) This Chapter sets out an exemption called “the exempt period exemption” for the purposes of section 371BA(2)(b).
(2) Section 371JE also provides for adjustments of profits which would otherwise pass through the CFC charge gateway (see section 371BB(2)(b)) linked to the exempt period exemption.
(1) The exempt period exemption applies for a CFC's accounting period if—
(a) the accounting period ends during an exempt period of the CFC (see sections 371JC and 371JD),
(b) the subsequent period condition is met, and
(c) the chargeable company condition is met.
(2) The subsequent period condition is met if—
(a) the CFC does not cease to be a CFC before having at least one accounting period which begins after the end of the exempt period, and
(b) section 371BC (charging the CFC charge) does not apply in relation to the CFC's first accounting period to begin after the end of the exempt period (see section 371BA(2)).
(3) The chargeable company condition is met if, at all times during the relevant period—
(a) the charging condition in section 371JC is met, and
(b) each company which would be a chargeable company for the purposes of that condition is an original chargeable company or is connected with an original chargeable company.
(4) In subsection (3)—
“original chargeable company” means a company which, for the purposes of the charging condition in section 371JC, would be a chargeable company at the beginning of the exempt period, and
“the relevant period” means the period which—
begins immediately after the beginning of the exempt period, and
ends at the end of the CFC's first accounting period to begin after the end of the exempt period.
(5) This section is subject to section 371JF (anti-avoidance).
(1) An exempt period of a CFC begins at any time (“the relevant time”) during an accounting period of the CFC if—
(a) the initial condition is met,
(b) the charging condition is met at the relevant time, and
(c) at no time during the relevant preceding period (if there is one) is the charging condition met.
(2) The initial condition is met if—
(a) immediately before the relevant time, the company (“C”) which is the CFC is carrying on a business, or
(b) if the relevant time is the time at which C is incorporated or formed, C is incorporated or formed by one or more persons for the purpose of controlling one or more companies in circumstances where it is expected that an exempt period will begin in relation to one or more of those companies when C begins to control the company or companies.
(3) To determine if the charging condition is met at any time, assume—
(a) that the company which is the CFC is a CFC at the time in question if that is not otherwise the case,
(b) that the time in question is itself an accounting period of the CFC, and
(c) that section 371BC (charging the CFC charge) applies in relation to the assumed accounting period.
(4) The charging condition is met at the time in question if, as a result of steps 1, 3 and 4 in section 371BC(1), there would be one or more chargeable companies in relation to the assumed accounting period.
(5) “The relevant preceding period” means the period of 12 months ending immediately before the relevant time, excluding any part of that period during which the company which is the CFC does not exist.
(1) Subject to what follows, an exempt period of a CFC lasts 12 months.
(2) Subsection (3) applies if a notice is given to an officer of Revenue and Customs requesting that the length of an exempt period of a CFC be extended (or further extended).
(3) An officer of Revenue and Customs may extend (or further extend) the length of the exempt period.
(4) A notice under subsection (2) must be given no later than the end of the exempt period (as it stands at the time the notice is given).
(5) A notice under subsection (2) may be given only by a company which, at the time the notice is given, would be a chargeable company for the purposes of the charging condition in section 371JC.
371JE Adjustment of profits passing through the CFC charge gateway
(1) This section applies for a CFC's accounting period if—
(a) the accounting period begins, but does not end, during an exempt period of the CFC, and
(b) the subsequent period condition and the chargeable company condition in section 371JB are both met.
(2) The CFC's assumed total profits which would otherwise pass through the CFC charge gateway are to be adjusted to ensure that no profits which arise in the exempt period, as determined on a just and reasonable basis, pass through the CFC charge gateway.
(3) This section is subject to section 371JF (anti-avoidance).
(1) The exempt period exemption does not apply for a CFC's accounting period (“the relevant accounting period”) if condition A or B is met.
(2) Condition A is that—
(a) an arrangement is entered into at any time,
(b) the main purpose, or one of the main purposes, of the arrangement is to secure a tax advantage for any person,
(c) the arrangement is linked to the exempt period exemption applying or being expected to apply (apart from this section)—
(i) for the relevant accounting period, or
(ii) for that period and one or more other accounting periods of the CFC, and
(d) the arrangement involves one or both of the following—
(i) the CFC holding assets which give rise to non-trading finance profits or trading finance profits of the CFC, or
(ii) the CFC holding intellectual property which gives rise to any income of the CFC.
(3) Condition B is that—
(a) an arrangement is entered into at any time,
(b) in consequence of the arrangement, the length of any accounting period of the CFC is less than 12 months, and
(c) the main purpose, or one of the main purposes, of the arrangement is to secure that the exempt period exemption applies—
(i) for the relevant accounting period, or
(ii) for that period and one or more other accounting periods of the CFC.
(4) In this section references to the exempt period exemption include references to section 371JE.
(1) This section applies in relation to a company's company tax return for a corporation tax accounting period if an exempt period of a CFC falls (wholly or partly) in the corporation tax accounting period.
(2) Any amendment of the return which relates to the application (or non-application) of the exempt period exemption or section 371JE for an accounting period of the CFC may be made by the company at any time no later than 12 months after the relevant filing date.
(3) “The relevant filing date” means the date which is the filing date under paragraph 14 of Schedule 18 to FA 1998 for the company's company tax return for its corporation tax accounting period in which ends the CFC's first accounting period to begin after the end of the exempt period.
(4) “Corporation tax accounting period” means an accounting period for corporation tax purposes.
(1) The excluded territories exemption applies for a CFC's accounting period if—
(a) the CFC is resident (see section 371KC) in an excluded territory for the accounting period,
(b) the total of the following amounts is no more than the threshold amount for the accounting period (see section 371KD)—
(i) the CFC's category A income (if any) for the accounting period (see sections 371KE and 371KF),
(ii) the CFC's category B income (if any) for the accounting period (see section 371KG),
(iii) the CFC's category C income (if any) for the accounting period (see section 371KH), and
(iv) the CFC's category D income (if any) for the accounting period (see section 371KI),
(c) the IP condition is met (see section 371KJ), and
(d) the CFC is not, at any time during the accounting period, involved in an arrangement the main purpose, or one of the main purposes, of which is to obtain a tax advantage for any person.
(2) In this Chapter “excluded territory” means a territory specified as such in regulations made by the HMRC Commissioners.
(3) The HMRC Commissioners may also by regulations, in relation to CFCs resident in a specified excluded territory or to other specified cases, do one or more of the following—
(a) provide that one or both of the requirements set out in subsection (1)(b) and (c) does not have to be met in order for the excluded territories exemption to apply;
(b) modify one or both of those requirements, including by modifying any provision of this Chapter mentioned in subsection (1)(b) or (c);
(c) specify further requirements which must be met in order for the excluded territories exemption to apply.
(4) If an amount is included in more than one of the categories of income mentioned in subsection (1)(b)(i) to (iv), the amount is to be counted only once in determining if the threshold amount is exceeded.