371KC How to determine the territory in which a CFC is resident
(1) For the purposes of this Chapter the territory in which a CFC is resident for an accounting period is to be determined in accordance with this section; and in this Chapter “the CFC's territory” means that territory as so determined.
(2) The CFC is taken to be resident in the territory determined in accordance with section 371TA.
(3) But section 371TA(1)(b) is to be applied only if, at all times during the accounting period, the CFC or persons with interests in the CFC are liable under the law of the territory in question to tax on the CFC's income.
(4) If, as a result of subsection (3), no territory of residence can be determined, the excluded territories exemption cannot apply for the accounting period.
(1) The threshold amount for a CFC's accounting period is—
(a) 10% of the CFC's accounting profits for the accounting period, or
(b) if more, £50,000.
(2) If the accounting period is less than 12 months, the amount specified in subsection (1)(b) is to be reduced proportionately.
(3) In this Chapter references to a CFC's accounting profits for an accounting period are to be read ignoring section 371VD(7) and (8).
(1) A CFC's category A income for an accounting period consists of any gross amounts (that is, amounts before deduction of expenses or transfers to or from reserves) of any relevant income to which subsection (3), (4) or (5) applies. This is subject to section 371KF.
(2) “Relevant income” means any income of the CFC which—
(a) is brought into account in determining the CFC's accounting profits for the accounting period, or
(b) is not so brought into account but arises in the accounting period.
(3) This subsection applies to any relevant income (apart from any dividend or other distribution of a company) so far as it is exempt from tax in the CFC's territory.
(4) This subsection applies to any relevant income so far as the tax which falls to be paid in respect of the relevant income in the CFC's territory is at a reduced rate by virtue of a provision having effect under the law of that territory the purpose of which is (wholly or mainly) to encourage (directly or indirectly) investment in that territory.
(5) This subsection applies to any relevant income if—
(a) any tax falls to be paid in respect of the relevant income in the CFC's territory,
(b) under the law of that territory, the CFC, any person who has an interest in the CFC or any person connected with the CFC is entitled to any repayment of tax or any payment in respect of a credit for tax, and
(c) that repayment or payment—
(i) is directly or indirectly in respect of the whole or part of the tax mentioned in paragraph (a), but
(ii) is not a form of relief in respect of losses incurred by the CFC.
371KF Category A income: permanent establishments in excluded territories
(1) This section applies if—
(a) a CFC's category A income for an accounting period would include (apart from this section) the gross amount of any relevant income which arises from the activities of a permanent establishment (“PE”) which the CFC has in a territory outside the CFC's territory, and
(b) the territory in which PE is established is an excluded territory.
(2) The gross amount of that relevant income is to be included in the CFC's category A income only so far as it would also have been included had the references in section 371KE(3) to (5) to the CFC's territory instead been references to the territory in which PE is established.
(1) A CFC's category B income for an accounting period consists of any notional interest which—
(a) is deducted from any of the CFC's relevant income for tax purposes under the law of the CFC's territory or any territory in which the CFC has a permanent establishment, but
(b) is not deducted in determining the CFC's assumed taxable total profits for the accounting period.
(2) But the CFC's category B income is not to exceed its relevant non-local income.
(3) “Notional interest” means an amount representing a notional interest expense or other financing charge calculated by reference to any of the CFC's equity or debt.
(4) “Relevant income” has the same meaning as in section 371KE.
(5) “Relevant non-local income” means the gross amount (that is, the amount before deduction of expenses or transfers to or from reserves) of any non-trading income—
(a) which is included in the CFC's relevant income, and
(b) which is received (directly or indirectly) from—
(i) a person resident outside the CFC's territory, or
(ii) a permanent establishment which a person resident in the CFC's territory (apart from the CFC itself) has in a territory outside the CFC's territory.
A CFC's category C income for an accounting period is the total of the following amounts—
(a) amounts included in the CFC's accounting profits for the period which fall within section 371VD(4)(a) (whether or not those amounts would have been included in those profits apart from section 371VD(4)(a)), and
(b) amounts included in those profits by virtue only of section 371VD(4)(b).
(1) A CFC's category D income for an accounting period consists of the gross amounts (that is, the amounts before deduction of expenses or transfers to or from reserves) of any income which—
(a) is brought into account in determining the CFC's accounting profits for the accounting period, and
(b) is to be included in the CFC's category D income in accordance with subsection (3) or (4).
(2) Subsection (3) applies if—
(a) income arises from any provision made or imposed by means of an arrangement as between the CFC and any company connected with the CFC,
(b) in the CFC's territory, the income is reduced by an amount (“the relevant amount”) for tax purposes on the basis that the income is more than what it would have been had the company connected with the CFC not been connected with the CFC, and
(c) there is not in any territory a corresponding increase for tax purposes in the income of a company connected with the CFC.
(3) The relevant amount is to be included in the CFC's category D income.
(4) Income is to be included in the CFC's category D income so far as the tax which falls to be paid in respect of the income in the CFC's territory is at a reduced rate by virtue of a ruling or other decision or an arrangement made in relation to the CFC by a governmental authority in that territory.
(1) This section applies for the purposes of section 371KB(1)(c).
(2) The IP condition is met unless—
(a) the CFC's assumed total profits for the accounting period 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 for the accounting period 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.
(1) The low profits exemption applies for a CFC's accounting period if subsection (2), (3), (4) or (5) applies.
(2) This subsection applies if the CFC's accounting profits for the accounting period are no more than £50,000.
(3) This subsection applies if the CFC's assumed taxable total profits for the accounting period are no more than £50,000.
(4) This subsection applies if—
(a) the CFC's accounting profits for the accounting period are no more than £500,000, and
(b) the amount of those profits representing non-trading income is no more than £50,000.
(5) This subsection applies if—
(a) the CFC's assumed taxable total profits for the accounting period are no more than £500,000, and
(b) the amount of those profits representing non-trading income is no more than £50,000.
(6) If the accounting period is less than 12 months, the amounts specified in subsections (2), (3), (4)(a) and (b) and (5)(a) and (b) are to be reduced proportionately.
(1) The low profits 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) in consequence of the arrangement, the low profits exemption would (apart from this section) apply for the relevant accounting period, and
(c) the main purpose, or one of the main purposes, of the arrangement is to secure that the low profits exemption applies—
(i) for the relevant accounting period, or
(ii) for that period and one or more other accounting periods of the CFC.
(3) Condition B is that, at any time during the relevant accounting period, the CFC's business is, wholly or mainly, the provision of UK intermediary services.
(4) For the purposes of subsection (3) the CFC provides “UK intermediary services” if—
(a) a UK resident individual (“the service provider”) personally performs, or is under an obligation personally to perform, services in the United Kingdom for a person (“the client”), and
(b) the services are provided not under a contract directly between the service provider and the client but under an arrangement involving the CFC.
(5) The low profits exemption does not apply for a CFC's accounting period by virtue of section 371LB(2) or (4) if condition C is met.
(6) Condition C is that, in determining the CFC's assumed taxable total profits for the accounting period, Part 21B of CTA 2010 (group mismatch schemes) has effect so as to exclude an amount from being brought into account as a debit or credit for the purposes of Part 5 of CTA 2009 (loan relationships) or Part 7 of that Act (derivative contracts).
(1) The low profit margin exemption applies for a CFC's accounting period if the CFC's accounting profits for the period are no more than 10% of the CFC's relevant operating expenditure.
(2) In this section references to the CFC's accounting profits are to those profits as determined before any deduction for interest.
(3) The CFC's “relevant operating expenditure” is its operating expenditure brought into account in determining its accounting profits for the accounting period, excluding—
(a) the cost of goods purchased by the CFC, other than goods used by the CFC in the territory in which it is resident for the accounting period, and
(b) any expenditure which gives rise, directly or indirectly, to income of a person related to the CFC.
The low profit margin exemption does not apply for a CFC's accounting period (“the relevant accounting period”) if—
(a) an arrangement is entered into at any time,
(b) in consequence of the arrangement, the low profit margin exemption would (apart from this section) apply for the relevant accounting period, and
(c) the main purpose, or one of the main purposes, of the arrangement is to secure that the low profit margin exemption applies—
(i) for the relevant accounting period, or
(ii) for that period and one or more other accounting periods of the CFC.
(1) Take the following steps to determine if the tax exemption applies for a CFC's accounting period.
Step 1 Applying section 371TB, determine the territory (“the CFC's territory”) in which the CFC is resident for the accounting period. If no territory of residence can be determined by applying section 371TB, the tax exemption cannot apply and no further steps are to be taken.
Step 2 Determine the amount of tax (“the local tax amount”) which is paid in the CFC's territory in respect of the CFC's local chargeable profits arising in the accounting period (applying section 371NC so far as relevant). If the local tax amount is determined under designer rate tax provisions (see section 371ND), the tax exemption cannot apply and step 3 is not to be taken.
Step 3 In accordance with section 371NE, determine the amount of the corresponding UK tax for the accounting period. The tax exemption applies if the local tax amount is at least 75% of the corresponding UK tax.
(2) Subsection (3) applies if an amount of tax is paid in the CFC's territory by a person (whether or not the CFC) in respect of any of the CFC's local chargeable profits arising in the accounting period taken together with other amounts.
(3) For the purposes of step 2 in subsection (1) the amount of tax is to be apportioned between the CFC's local chargeable profits in question and the other amounts on a just and reasonable basis.
(4) In this Chapter references to the CFC's local chargeable profits are to its profits as determined for tax purposes under the law of the CFC's territory, ignoring any capital gains or losses.
(1) This section applies for the purposes of step 2 in section 371NB(1).
(2) The local tax amount is to be reduced to what it would have been—
(a) had any income, or any income and expenditure (where the income exceeds the expenditure), to which subsection (3) applies not been brought into account in determining the CFC's local chargeable profits arising in the accounting period in respect of which tax is paid in the CFC's territory, and
(b) had any expenditure to which subsection (4) applies been brought into account in determining those profits.
(3) This subsection applies to any income, or any income and expenditure, of the CFC—
(a) which is brought into account in determining the CFC's local chargeable profits arising in the accounting period in respect of which tax is paid in the CFC's territory, but
(b) which does not fall to be brought into account in determining the CFC's assumed taxable total profits for the accounting period.
(4) This subsection applies to any expenditure of the CFC—
(a) which is not brought into account in determining the CFC's local chargeable profits arising in the accounting period in respect of which tax is paid in the CFC's territory, but
(b) which does fall to be brought into account in determining the CFC's assumed taxable total profits for the accounting period.
(5) Subsection (6) applies if—
(a) in the CFC's territory any tax falls to be paid in respect of the CFC's local chargeable profits arising in the accounting period,
(b) under the law of that territory, any repayment of tax, or any payment in respect of a credit for tax, is made to any person, and
(c) that repayment or payment is directly or indirectly in respect of the whole or part of the tax mentioned in paragraph (a).
(6) The local tax amount is to be reduced (or further reduced after any reduction under subsection (2)) by the amount of that repayment or payment.
(1) For the purposes of step 2 in section 371NB(1) “designer rate tax provisions” means provisions—
(a) which appear to the HMRC Commissioners to be designed to enable companies to exercise significant control over the amount of tax which they pay, and
(b) which are specified in regulations made by the HMRC Commissioners.
(2) Regulations under subsection (1) may make different provision for different cases or with respect to different territories.
(1) For the purposes of step 3 in section 371NB(1) “the corresponding UK tax” is the amount of corporation tax which, applying the corporation tax assumptions, would be charged in respect of the CFC's assumed taxable total profits for the accounting period.
(2) In determining that amount of corporation tax—
(a) ignore any relief from corporation tax attributable to the local tax amount which would be given to the CFC by virtue of Part 2 (double taxation relief) in respect of any income, and
(b) deduct from what would otherwise be that amount of corporation tax—
(i) any amount which, applying the corporation tax assumptions, would be set off against corporation tax on the CFC's assumed taxable total profits by virtue of section 967 of CTA 2010 (cases in which a company receives a payment bearing income tax), and
(ii) any amount of income tax or corporation tax actually charged in respect of any income included in the CFC's assumed taxable total profits.
(3) In subsection (2)(b) the references to an amount being set off or an amount actually charged do not include so much of any such amount as has been or falls to be repaid to the CFC whether on the making of a claim or otherwise.
(1) This section applies for the purposes of this Chapter.
(2) A person's interest in a company is an “indirect” interest so far as the person has the interest by virtue of having an interest in another company; and references to a “direct” interest in a company are to be read accordingly.
(3) An interest held by an open-ended investment company within the meaning of Chapter 2 of Part 13 of CTA 2010 (see sections 613 and 615) is treated as held by the company's shareholders in proportion to their shareholdings.
(4) An interest held by the trustees of an authorised unit trust is treated as held by the persons who have rights under the trust in proportion to their rights.
(5) An interest held by a bare trustee or nominee (including by virtue of subsection (3) or (4)) is treated as held by the person or persons for whom the bare trustee or nominee holds the interest.
(6) “Bare trustee” means a person acting as trustee for—
(a) a person absolutely entitled as against the trustee,
(b) two or more persons who are so entitled,
(c) a person who would be so entitled but for being a minor or otherwise lacking legal capacity, or
(d) two or more persons who would be so entitled but for all or any of them being a minor or otherwise lacking legal capacity.
(7) Subsection (8) applies in a case not covered by subsection (5) if—
(a) an interest is held in a fiduciary or representative capacity (including by virtue of subsection (3) or (4)), and
(b) there are one or more identifiable beneficiaries.
(8) The interest is taken to be held by that beneficiary or, as the case may be, apportioned between those beneficiaries on a just and reasonable basis.
371OC “Relevant interests” of UK resident companies
(1) A UK resident company's interest in a CFC is a “relevant interest”, except so far as subsection (2) applies to it.
(2) This subsection applies to the interest so far as it is an indirect interest which the UK resident company has by virtue of having an interest in another UK resident company.
371OD “Relevant interests” of persons related to UK resident companies
(1) This section applies if, by virtue of section 371OC, a UK resident company (“UKRC”) has a relevant interest in a CFC.
(2) A related person's interest in the CFC is a “relevant interest”, except so far as subsection (4) or (5) applies to it.
(3) “Related person” means a person, other than a UK resident company, who is connected or associated with UKRC.
(4) This subsection applies to the related person's interest so far as it is an indirect interest which the related person has by virtue of having an interest in a UK resident company or another related person.
(5) This subsection applies to the interest so far as it is the same as UKRC's relevant interest in the CFC by virtue of UKRC having an interest in the related person.
(1) This section applies if a person (“P”) has a direct interest in a CFC which is not a relevant interest by virtue of section 371OC or 371OD.
(2) P's direct interest is a “relevant interest”, except so far as subsection (3) applies to it.
(3) This subsection applies to P's direct interest so far as it is the same as another person's relevant interest in the CFC by virtue of the other person having an interest in P.
(4) In subsection (3) the reference to another person's relevant interest is to another person's relevant interest by virtue of section 371OC or 371OD.
(1) For the purposes of step 2 in section 371BC(1) a CFC's creditable tax for an accounting period is the total of—
(a) the amount of any relief from corporation tax attributable to any foreign tax which, applying the corporation tax assumptions, would be given to the CFC by virtue of Part 2 (double taxation relief) in respect of any income included or represented in the CFC's chargeable profits for the accounting period,
(b) any amount of relevant income tax which, applying the corporation tax assumptions, would be set off against corporation tax on the CFC's chargeable profits for the accounting period by virtue of section 967 of CTA 2010 (cases in which a company receives a payment bearing income tax),
(c) any amount of income tax or corporation tax actually charged in respect of any income included or represented in the CFC's chargeable profits for the accounting period, and
(d) any amount of a foreign CFC charge paid in respect of any income included or represented in the CFC's chargeable profits for the accounting period.
(2) In subsection (1)(a) “foreign tax” means—
(a) the local tax amount, or
(b) any tax under the law of a relevant foreign territory.
(3) In subsection (1)(b) “relevant income tax” means income tax which the CFC bears by deduction on a payment so far as the payment is included or represented in the CFC's chargeable profits.
(4) In subsection (1)(d) “foreign CFC charge” means a charge under the law of a relevant foreign territory (by whatever name known) which is similar to the CFC charge.
(5) In subsection (1)(b) to (d) references to an amount being set off, an amount actually charged or an amount paid do not include so much of any such amount as has been or falls to be repaid to the CFC or any other person whether on the making of a claim or otherwise.
(6) “Relevant foreign territory” means a territory outside the United Kingdom other than the territory in which the CFC is resident for the accounting period.
This Chapter applies for the purpose of apportioning a CFC's chargeable profits and creditable tax for an accounting period among the relevant persons as required by step 3 in section 371BC(1).
(1) This section applies for the purposes of this Chapter.
(2) Section 371OB applies as it applies for the purposes of Chapter 15.
(3) “Ordinary shares”, in relation to any company, means shares of a single class, however described, which is the only class of share issued by the company.
(4) For the purposes of subsection (3)—
(a) “share” includes a fraction of a share, and
(b) shares issued by a company which are paid up to different amounts are not to be taken to be of a single class.
(5) A person (“P”) holds ordinary shares in the CFC “indirectly” if P directly holds ordinary shares in a company which is share-linked to the CFC.
(6) A company is “share-linked” to the CFC if it has an interest in the CFC only by virtue of it holding directly—
(a) ordinary shares in the CFC, or
(b) ordinary shares in another company which is share-linked to the CFC (whether by virtue of paragraph (a) or this paragraph),
and “share-linked company” means a company which is share-linked to the CFC.
(1) If conditions X to Z are met, the CFC's chargeable profits and creditable tax are to be apportioned among the relevant persons in accordance with section 371QD.
(2) If not, the percentage of the chargeable profits and the percentage of the creditable tax to be apportioned to each relevant person is to be determined on a just and reasonable basis.
(3) Condition X is that the relevant persons all have their relevant interests by virtue only of their holding, directly or indirectly, ordinary shares in the CFC.
(4) Condition Y is that each relevant person meets the requirement that the person is either—
(a) UK resident at all times during the accounting period, or
(b) non-UK resident at all times during the accounting period.
(5) Condition Z is that no company which has an intermediate interest in the CFC at any time in the accounting period has that interest otherwise than by virtue of holding, directly or indirectly, ordinary shares in the CFC.
(6) A company (“C”) has an “intermediate interest” in the CFC if—
(a) C has an interest in the CFC, and
(b) one or more of the relevant persons have relevant interests in the CFC by virtue of having an interest in C.
371QD Apportionments to be made in proportion to shareholding
(1) If conditions X to Z in section 371QC are met, apply subsections (2) and (3) to each relevant person.
(2) Determine the percentage (“P%”) of the issued ordinary shares in the CFC represented by the relevant person's relevant interest.
(3) P% of the CFC's chargeable profits and P% of the CFC's creditable tax is then apportioned to the relevant person.
(4) This section is supplemented by sections 371QE and 371QF.
(1) This section applies to the relevant interest of a relevant person (“R”) so far as R has that interest by virtue of holding, indirectly, ordinary shares in the CFC (“the relevant shares”).
(2) The percentage of the issued ordinary shares in the CFC represented by R's relevant interest (so far as this section applies to it) is given by the following formula—
P × S
where—
P is the product of the appropriate fractions of R and each of the share-linked companies through which R indirectly holds the relevant shares, other than the share-linked company which directly holds the relevant shares, and
S is the percentage of the issued ordinary shares in the CFC which the relevant shares represent.
(3) “The appropriate fraction”, in relation to any person who directly holds ordinary shares in a share-linked company, means that fraction of the issued ordinary shares in the share-linked company which the holding represents.
(4) If R has different indirect holdings of shares in the CFC (as in the case where different shares are held through different share-linked companies)—
(a) apply subsection (2) separately in relation to each holding (reading references to the relevant shares accordingly), and
(b) then add the separate results together to give the total percentage of the issued ordinary shares in the CFC represented by R's relevant interest (so far as this section applies to it).
(1) This section applies if the percentage of the issued ordinary shares in the CFC represented by a relevant person's relevant interest varies during the accounting period.
(2) That percentage is taken to be the percentage equal to the sum of the relevant percentages for each holding period.
(3) “Holding period” means a part of the accounting period during which the percentage of the issued ordinary shares in the CFC represented by the relevant person's relevant interest remains the same.
(4) “Relevant percentage”, in relation to a holding period, means the percentage given by the following formula—
P × H A
where—
P is the percentage of the issued ordinary shares in the CFC represented by the relevant person's relevant interest during the holding period,
H is the number of days in the holding period, and
A is the number of days in the accounting period.
(1) This section applies in relation to an accounting period (“the relevant accounting period”) of a CFC if—
(a) at any time an arrangement is entered into, and
(b) the main purpose, or one of the main purposes, of the arrangement is to obtain for any person a tax advantage within section 1139(2)(da) of CTA 2010 in relation to—
(i) the relevant accounting period, or
(ii) that period and one or more other accounting periods of the CFC.
(2) The CFC's chargeable profits and creditable tax for the relevant accounting period are to be apportioned in accordance with section 371QC(2) (and not section 371QD if that section would otherwise apply).
(3) The apportionments must (in particular) be made in a way which, so far as practicable, counteracts the effects of the arrangement mentioned in subsection (1)(a) so far as those effects are referable to the purpose mentioned in subsection (1)(b).
(1) Sections 371RB and 371RE set out how to determine for the purposes of this Part if a company is “controlled” by another person or persons.
(2) Sections 371RC and 371RG set out certain cases in which a non-UK resident company which would not otherwise be a CFC is to be taken to be a CFC for the purposes of this Part.
(1) A person (“P”) “controls” a company (“C”) if—
(a) by means of the holding of shares or the possession of voting power in or in relation to C or any other company, or
(b) by virtue of any powers conferred by the articles of association or other document regulating C or any other company,
P has the power to secure that the affairs of C are conducted in accordance with P's wishes.
(2) A person (“P”) “controls” a company (“C”) if it is reasonable to suppose that P would—
(a) if the whole of C's share capital were disposed of, receive (directly or indirectly and whether at the time of the disposal or later) over 50% of the proceeds of the disposal,
(b) if the whole of C's income were distributed, receive (directly or indirectly and whether at the time of the distribution or later) over 50% of the distributed amount, or
(c) in the event of the winding-up of C or in any other circumstances, receive (directly or indirectly and whether at the time of the winding-up or other circumstances or later) over 50% of C's assets which would then be available for distribution.
(3) For the purposes of subsection (2) any rights which P has as a relevant bank are to be ignored.
(4) In subsection (2)—
(a) in paragraph (a) the reference to C's share capital is to C's share capital excluding any share capital held by relevant banks,
(b) in determining for the purposes of paragraph (b) the percentage of the distributed amount which it is reasonable to suppose P would receive, ignore any rights of a relevant bank which would entitle the bank directly to receive a percentage of the distributed amount at the time of the distribution, and
(c) in determining for the purposes of paragraph (c) the percentage of C's assets which it is reasonable to suppose P would receive, ignore any rights of a relevant bank which would entitle the bank directly to receive a percentage of C's assets at the time of the winding-up or other circumstances.
(5) “Relevant bank” means a person (“RB”) who—
(a) carries on banking business which is regulated in the territory in which RB is resident, and
(b) is acting, in the ordinary course of that business, in relation to money lent to C by RB in the ordinary course of that business.
(6) In subsections (2) and (4) references to P receiving any proceeds, amount or assets include references to the proceeds, amount or assets being applied (directly or indirectly) for P's benefit.
(7) If two or more persons, taken together, meet the requirement of subsection (1) or (2) for controlling a company, those persons are taken to control the company.
(1) This section applies to a non-UK resident company (“C”) if—
(a) in accordance with section 371RB(7), two persons (“the controllers”) control C, and
(b) one of the controllers is UK resident and the other is non-UK resident.
(2) If conditions X and Y are met, C is to be taken to be a CFC (if C would not otherwise be).
(3) Condition X is that the UK resident controller has interests, rights and powers representing at least 40% of the holdings, rights and powers in respect of which the controllers fall to be taken as controlling C.
(4) Condition Y is that the non-UK resident controller has interests, rights and powers representing—
(a) at least 40%, but
(b) no more than 55%,
of the holdings, rights and powers in respect of which the controllers fall to be taken as controlling C.
371RD Legal and economic control: supplementary provision
(1) Subsection (2) applies for the purpose of—
(a) determining, in accordance with section 371RB, if a person, or two or more persons, control a company, or
(b) determining if condition X or Y in section 371RC is met in relation to two persons who control a company.
(2) There is to be attributed to each person all the rights and powers mentioned in subsection (3) (so far as they would not otherwise be attributed to the person).
(3) The rights and powers referred to in subsection (2) are—
(a) rights and powers which the person (“P”) is entitled to acquire at a future date or which P will, at a future date, become entitled to acquire,
(b) rights and powers of other persons so far as they fall within subsection (4),
(c) if P is UK resident, rights and powers of any UK resident person who is connected with P, and
(d) if P is UK resident, rights and powers which would, in accordance with subsection (2), be attributed to a UK resident person (“Q”) who is connected with P if Q were P (including rights and powers which would be attributed to Q by virtue of this paragraph).
(4) Rights and powers fall within this subsection so far as they—
(a) are required, or may be required, to be exercised in one or more of the following ways—
(i) on behalf of P,
(ii) under the direction of P, or
(iii) for the benefit of P, and
(b) are not confined, in a case where a loan has been made by one person to another, to rights and powers conferred in relation to property of the borrower by the terms of any security relating to the loan.
(5) In subsections (3)(b) to (d) and (4) references to a person's rights and powers include references to any rights or powers which the person—
(a) is entitled to acquire at a future date, or
(b) will, at a future date, become entitled to acquire.
(6) In determining for the purposes of this section whether one person is connected with another, section 1122(4) of CTA 2010 (as applied by section 371VF(2)(b)) is to be ignored.
(7) In this section and sections 371RB and 371RC references to—
(a) rights and powers of a person, or
(b) rights and powers which a person is or will become entitled to acquire,
include references to rights and powers which are exercisable by that person, or (when acquired by that person) will be exercisable, only jointly with one or more other persons.
371RE Control determined by reference to accounting standards
(1) A person (“P”) “controls” a company (“C”) at any time when P is C's parent ....
(2) But C is not to be taken to be a CFC by virtue of subsection (1) at the time in question unless the 50% condition is met at that time.
(3) To determine if the 50% condition is met at the time in question, assume—
(a) that C is a CFC at that time,
(b) that that time 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 50% condition is met at the time in question if, as a result of steps 1 and 3 in section 371BC(1), at least 50% of the CFC's chargeable profits would be apportioned to P taken together with its UK resident subsidiaries (if any).
(5) “Parent” and “subsidiary” are to be read in accordance with Financial Reporting Standard 102 issued in March 2013 by the Financial Reporting Council , as from time to time modified, amended or revised.
(6) For the purposes of this section it does not matter if P does not prepare, or is not required to prepare, consolidated financial statements in accordance with Financial Reporting Standard 102 (but see section 371RF(3)).
(1) The Treasury may by regulations amend section 371RE as they consider appropriate to take account of—
(a) any modification, amendment or revision of Financial Reporting Standard 2, or
(b) any relevant document.
(2) “Relevant document” means—
(a) a document which replaces Financial Reporting Standard 2, or
(b) a document which replaces, modifies, amends or revises a document falling within paragraph (a) or a document which is a relevant document by virtue of this paragraph.
(3) The Treasury may by regulations make provision corresponding to section 371RE—
(a) which operates by reference to any other accounting standard dealing with consolidated financial statements, and
(b) which is to apply, instead of section 371RE, to determine if a person “controls” a company where that person prepares, or is required to prepare, consolidated financial statements in accordance with that standard.
(4) The Treasury may by regulations provide that, if specified conditions are met, a company is not to be taken to be a CFC by virtue of—
(a) section 371RE, or
(b) provision corresponding to section 371RE contained in regulations under subsection (3).
(5) In subsections (3) and (4) references to section 371RE are to that section as amended from time to time by regulations under subsection (1).
371RG Companies in which a UK resident company has more than a 50% investment
(1) If a UK resident company (whether alone or together with any associated enterprises) directly or indirectly has more than a 50% investment in a non-UK resident company, the non-UK resident company is to be taken to be a CFC (if it would not otherwise be).
(2) A person (“P”) is an “associated enterprise” in relation to a UK resident company if—
(a) P directly or indirectly has a 25% investment in the company (or vice versa), or
(b) another person directly or indirectly has a 25% investment in each of P and the company.
(3) Section 259ND (meaning of “50% investment” and “25% investment”) applies for the purposes of determining for the purposes of this section—
(a) whether a person has “more than a 50% investment” in another person, and
(b) whether a person has a “25% investment” in another person,
and, accordingly, references in section 259ND to “X%” are to be read as references to more than 50% or to 25% (as appropriate) and references in that section to “X% or more” are to be read as references to more than 50% or to 25% or more (as appropriate).
This Chapter explains the concepts of “assumed taxable total profits” and “assumed total profits” (see section 371SB) and “the corporation tax assumptions” (see section 371SC) which are referred to in this Part.