Law

Taxation (International and Other Provisions) Act 2010

United Kingdom · statute

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In force since 2026-03-18, as the publisher states.

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Contains public sector information licensed under the Open Government Licence v3.0. Source: legislation.gov.uk, The National Archives.

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Contents: 675 provisions
  1. Title and introductory text
  2. 1 Overview of Act
  3. 2 Giving effect to arrangements made in relation to other territories
  4. 3 Arrangements may include retrospective or supplementary provision
  5. 4 Meaning of “double taxation” in sections 2 and 3
  6. 5 Orders under section 2: contents and procedure
  7. 6 The effect given by section 2 to double taxation arrangements
  8. 7 General regulations
  9. 8 Interpretation: “unilateral relief arrangements” means rules 1 to 9, etc
  10. 9 Rule 1: the unilateral entitlement to credit for non-UK tax
  11. 10 Rule 2: accrued income profits
  12. 11 Rule 3: interaction between double taxation arrangements and rules 1 and 2
  13. 12 Rule 4: cases in which, and calculation of, credit allowed for tax on dividends
  14. 13 Rule 5: credit for tax charged directly on dividend
  15. 14 Rule 6: credit for underlying tax on dividend paid to 10% associate of payer
  16. 15 Rule 7: credit for underlying tax on dividend paid to sub-10% associate
  17. 16 Rule 8: credit for underlying tax on dividend paid by exchanged associate
  18. 17 Rule 9: credit in relation to dividends for spared tax
  19. 18 Entitlement to credit for foreign tax reduces UK tax by amount of the credit
  20. 19 Time limits for claims for relief under section 18(2)
  21. 20 Foreign tax includes tax spared because of international development relief
  22. 21 Meaning of “the arrangements”, “the non-UK territory”, “foreign tax” etc
  23. 23 Time limits for claims for relief under section 22(2)
  24. 25 Credit not allowed if relief allowed against overseas tax
  25. 26 Credit not allowed under arrangements unless taxpayer is UK resident
  26. 27 Credit not allowed if person elects against credit
  27. 28 Unilateral relief for Isle of Man or Channel Islands tax
  28. 29 Unilateral relief for tax on income from employment or office
  29. 30 Unilateral relief for non-UK tax on non-resident's UK branch or agency etc
  30. 31 Calculation of income or gain where remittance basis does not apply
  31. 32 Calculation of amount received where UK tax charged on remittance basis
  32. 33 Limit on credit: minimisation of the foreign tax
  33. 34 Reduction in credit: payment by reference to foreign tax
  34. 35 Disallowed credit: use as a deduction
  35. 36 Amount of limit
  36. 37 Credit against tax on trade income: further rules
  37. 38 Credit against tax on royalties: further rules
  38. 39 Credit reduced by reference to accrued income losses
  39. 40 Amount of limit
  40. 41 Amount of limit
  41. 42 Amount of limit
  42. 43 Profits attributable to permanent establishments for purposes of section 42(2)
  43. 44 Credit against tax on trade income
  44. 45 Credit against tax on trade income: anti-avoidance rules
  45. 46 Applying section 44(2): asset in hedging relationship with derivative contract
  46. 47 Applying section 44(2): royalty income
  47. 48 Applying section 44(2): “portfolio” of transactions, arrangements or assets
  48. 49 Restricting section 44(3) if company is a bank or connected with a bank
  49. 49A Limit on credit in cases involving qualifying loan relationships of CFCs
  50. 49B Applying section 42(2) to non-trading credits from loan relationships etc
  51. 50 Tax for period on loan relationships
  52. 51 Tax for period on intangible fixed assets
  53. 52 General deductions
  54. 53 Earlier years' non-trading deficits on loan relationships
  55. 54 Non-trading debits on loan relationships
  56. 55 Current year's non-trading deficits on loan relationships
  57. 56 Non-trading debits on intangible fixed assets
  58. 57 Credit in respect of dividend: taking account of underlying tax
  59. 58 Calculation if dividend paid by non-resident company to resident company
  60. 59 Meaning of “relevant profits” in section 58
  61. 60 Underlying tax to be left out of account on claim to that effect
  62. 61 Calculation if section 58 does not apply
  63. 62 Meaning of “relevant profits” in section 61
  64. 63 Non-UK company dividend paid to 10% investor: relief for UK and other tax
  65. 64 Meaning of “dividend-paying chain” of companies
  66. 65 Relief for underlying tax paid by company lower in dividend-paying chain
  67. 66 Limitations on section 65(4)
  68. 67 Restriction of relief if underlying tax at rate higher than rate of corporation tax
  69. 68 Meaning of “avoidance scheme” in section 67
  70. 69 Dividends paid out of transferred profits
  71. 70 Underlying tax reflecting interest on loans
  72. 71 Foreign taxation of group as single entity
  73. 71A Circumstances in which section 71B applies
  74. 71B Reduction of foreign tax paid on profits of overseas PE
  75. 72 Application of section 73(1)
  76. 73 Carry-forward and carry-back of unrelieved foreign tax
  77. 74 Rules for carrying back unrelieved foreign tax
  78. 75 Two or more establishments treated as a single establishment
  79. 76 Former and subsequent establishments regarded as distinct establishments
  80. 77 Claims for relief under section 73(1)
  81. 78 Meaning of “overseas permanent establishment”
  82. 79 Time limits for action if tax adjustment makes credit excessive or insufficient
  83. 80 Duty to give notice that adjustment has rendered credit excessive
  84. 81 Countering effect of avoidance arrangements
  85. 82 Conditions for the purposes of section 81(1)
  86. 83 Schemes and arrangements referred to in section 82(4)
  87. 84 Section 83(2) and (4): schemes enabling attribution of foreign tax
  88. 85 Section 83(2) and (4): schemes about effect of paying foreign tax
  89. 85A Section 83(2) and (4): schemes involving deemed foreign tax
  90. 86 Section 83(2) and (4): schemes about claims or elections etc
  91. 87 Section 83(2) and (4): schemes that would reduce a person's tax liability
  92. 88 Section 83(2) and (4): schemes involving tax-deductible payments
  93. 89 Contents of counteraction notice
  94. 90 Consequences of counteraction notices
  95. 91 Counteraction notices given before tax return made
  96. 92 Counteraction notices given after tax return made
  97. 93 Amendment, closure notices and discovery assessments in section 92 cases
  98. 94 Information made available for the purposes of section 92(4)
  99. 95 Interpretation of sections 89 to 94
  100. 96 Companies with overseas branches: restriction of credit
  101. 97 Companies with more than one category of business: restriction of credit
  102. 97A Commercial allocation of relevant income to different categories of long-term business
  103. 98 Attribution for section 97 purposes if category is gross roll-up business
  104. 99 Allocation of expenses etc in calculations under section 35 of CTA 2009
  105. 100 First limitation for purposes of section 99(2)
  106. 101 Second limitation for purposes of section 99(2)
  107. 102 Interpreting sections 99 to 101 for life assurance or gross roll-up business
  108. 103 Interpreting sections 99 to 101 ...
  109. 104 Interpreting sections 100 and 101: amounts referable to category of business
  110. 105 Meaning of “chargeable gain”
  111. 106 Chapters 1 and 2 apply to capital gains tax separately from other taxes
  112. 107 Disregard of foreign tax referable to derivative contract
  113. 108 Disregard of foreign tax attributable to interest under a loan relationship
  114. 109 Repo cases in which no disregard under section 108
  115. 110 Stock-lending cases in which no disregard under section 108
  116. 111 When payment to beneficiary treated as arising from foreign source
  117. 112 Deduction from income for foreign tax (instead of credit against UK tax)
  118. 113 Deduction from capital gain for foreign tax (instead of credit against UK tax)
  119. 114 Time limits for action if tax adjustment makes reduction too large or too small
  120. 115 Duty to give notice that adjustment has rendered reduction too large
  121. 116 Introduction to section 117
  122. 117 Tax treated as chargeable in respect of transfer of loan relationship, derivative contract or intangible fixed assets
  123. 118 Introduction to section 119
  124. 119 Tax treated as chargeable in respect of transfer of loan relationship, derivative contract or intangible fixed assets
  125. 120 Introduction to section 121
  126. 121 Tax treated as chargeable in respect of relevant transactions
  127. 122 Tax treated as chargeable in respect of gains on transfer of non-UK business
  128. 123 Interpretation of sections 116 to 122
  129. 124 Giving effect to solutions to cases and mutual agreements resolving cases
  130. 125 Effect of, and deadline for, presenting a case
  131. 126 Meaning of “the Arbitration Convention”
  132. 127 Giving effect to agreements, decisions and opinions under the Convention
  133. 128 Disclosure under the Convention
  134. 128A Power by regulations to give effect to international obligations etc
  135. 128B Giving effect to requirements under section 128A regulations
  136. 128C Disclosure under international obligations etc
  137. 129 Disclosure where relief given overseas for tax paid in the United Kingdom
  138. 130 Interpreting provision about UK taxation of profits of foreign enterprises
  139. 130A Interpreting provision about UK taxation of pensions etc
  140. 131 Interpreting provision about interest influenced by special relationship
  141. 132 Interpreting provision about royalties influenced by special relationship
  142. 133 Special relationship rule for royalties: matters to be shown by taxpayer
  143. 134 Correcting assessments where relief is available
  144. 135 Relief under this Part: introductory
  145. 136 Interpretation of Part
  146. 137 Income tax credit etc for special withholding tax
  147. 138 Amount and application of the deemed tax under section 137
  148. 139 Capital gains tax credit etc for special withholding tax
  149. 140 Provisions about the deemed tax under section 139
  150. 141 Credit under Chapter 2 of Part 2 to be allowed first
  151. 142 Conditions for purposes of section 143
  152. 143 Taking account of special withholding tax in calculating income or gains
  153. 144 Issue of certificate
  154. 145 Refusal to issue certificate and appeal against refusal
  155. 146 Application of this Part
  156. 147 Tax calculations to be based on arm's length, not actual, provision
  157. 148 The “participation condition”
  158. 148A Participation condition treated as met: transfer pricing notice
  159. 149 “Actual provision” and “affected persons”
  160. 150 “Transaction” and “series of transactions”
  161. 151 “Arm's length provision”
  162. 152 Arm's length provision where actual provision relates to securities
  163. 153 Arm's length provision where security issued and guarantee given
  164. 153A Certain guarantees not capable of being arm’s length
  165. 153B Election for deemed guarantee
  166. 154 Interpretation of sections 153A and 153B
  167. 155 “Potential advantage” in relation to United Kingdom taxation
  168. 156 “Losses” and “profits”
  169. 157 Direct participation
  170. 158 Indirect participation: defined by sections 159 to 161
  171. 159 Indirect participation: potential direct participant
  172. 160 Indirect participation: one of several major participants
  173. 161 Indirect participation: involvement in financing arrangements
  174. 162 Indirect participation: sections 148 , 175 and 219(2): further financing cases
  175. 162A Agreements for common management
  176. 162B Arrangements to avoid participation condition
  177. 163 Meaning of “connected” in sections 159 and 161
  178. 164 Part to be interpreted in accordance with OECD principles
  179. 164A UK to UK Exemption
  180. 165 Exemption for dormant companies
  181. 166 Exemption for small and medium-sized enterprises
  182. 167 Small and medium-sized enterprises: exceptions from exemption
  183. 167A Small enterprises: exception from exemption: transfer pricing notice
  184. 168 Medium-sized enterprises: exception from exemption: transfer pricing notice
  185. 169 Giving of transfer pricing notices
  186. 170 Appeals against transfer pricing notices
  187. 171 Tax returns where transfer pricing notice given
  188. 172 Meaning of “small enterprise” and “medium-sized enterprise”
  189. 173 Meaning of “qualifying territory” and “non-qualifying territory”
  190. 173A Exchange gains and losses arising as a result of qualifying loan relationships and derivative contracts
  191. 174 Claim by the affected person who is not potentially advantaged etc
  192. 174A Claims under section 174 where disadvantaged person within charge to income tax
  193. 175 Application of section 174 where guarantee disallowed
  194. 176 Claims under section 174: advantaged person must have made return
  195. 177 Time for making, or amending, claim under section 174
  196. 178 Meaning of “return” in sections 176 and 177
  197. 179 Compensating payment if advantaged person is controlled foreign company
  198. 180 Application of section 174(2)(a) in relation to transfers of trading stock etc
  199. 181 Section 182 applies to claims where actual provision relates to borrowing
  200. 182 Making of section 182 claims
  201. 183 Giving effect to section 182 claims
  202. 184 Amending a section 182 claim if it is followed by relevant notice
  203. 185 Notice to potential claimants
  204. 186 Extending claim period if notice under section 185 not given or given late
  205. 187 Tax treatment if actual interest exceeds arm's length interest
  206. 187A Excess interest treated as a ... distribution
  207. 188 Double taxation relief by way of credit for foreign tax
  208. 189 Double taxation relief by way of deduction for foreign tax
  209. 190 Meaning of “relevant notice”
  210. 191 When sections 192 to 194 apply
  211. 192 Attribution to guarantor company of things done by borrower
  212. 192A Provision for cases within Part 6A
  213. 193 Interaction between claims under sections 174 and 192(1)
  214. 194 Claims under section 192(1): general provisions
  215. 195 Qualifying conditions for purposes of section 196
  216. 196 Balancing payments between affected persons: no charge to, or relief from, tax
  217. 197 Qualifying conditions for purposes of section 198
  218. 198 Balancing payments by guarantor to borrower: no charge to, or relief from, tax
  219. 199 Pre-conditions for making election under section 200
  220. 200 Election to pay tax rather than make balancing payments
  221. 201 Pre-conditions for making election under section 202
  222. 202 Election, in guarantee case, to pay tax rather than make balancing payments
  223. 203 Elections under section 200 or 202
  224. 204 Meaning of “capital market condition” in sections 199 and 201
  225. 205 Provision made or imposed between ring-fence trade and other activities
  226. 206 Meaning of “oil-related ring-fence trade” in sections 205 and 218
  227. 206A Modification of basic rule where allowances restricted for certain expenditure
  228. 207 Application of Part to unit trusts
  229. 208 The determinations which require the Commissioners' sanction
  230. 209 Determinations exempt from requirement for Commissioners' sanction
  231. 210 The requirement for the Commissioners' sanction
  232. 211 Restriction of right to appeal against Commissioners' approval
  233. 212 Appeals
  234. 213 Capital allowances
  235. 214 Chargeable gains
  236. 215 Manner of making adjustments to give effect to Part
  237. 216 Meaning of “the relevant activities”
  238. 217 Meaning of “control” and “firm”
  239. 217A Introduction
  240. 217B Unassessed transfer pricing profits
  241. 217C Conditions for being assessed under this Part at the UTPP rate
  242. 217D Effective tax mismatch outcome
  243. 217E Tax design condition
  244. 217F Preliminary notices
  245. 217G Representations by the company
  246. 217H Assessment
  247. 217I Amendment of company tax return by company
  248. 217J Amendment of assessment by HMRC
  249. 217K No postponement except before assessment is finalised for tax on same profits
  250. 217L Closure notices: rules relating to period for amendments
  251. 217M Appeal against assessment
  252. 217N Review of assessment
  253. 217P Settling of appeal by agreement
  254. 217Q No repayment
  255. 217R Exclusion of reliefs, deductions and set-offs
  256. 217S Assessment otherwise than at UTPP rate: no deduction for excess losses
  257. 217T Interpretation
  258. 218 Meaning of “advance pricing agreement”
  259. 219 Meaning of “associate” in section 218(2)(e)
  260. 220 Effect of agreement on party to it
  261. 221 Effect of revocation of agreement or breach of its conditions
  262. 222 Effect of agreement on non-parties
  263. 223 Application for agreement
  264. 224 Provision in agreement about years ended or begun before agreement made
  265. 225 Modification and revocation of agreement
  266. 226 Annulment of agreement for misrepresentation
  267. 227 Penalty for misrepresentation in connection with agreement
  268. 228 Party to agreement: duty to provide information
  269. 229 Modifications of agreement for double taxation purposes
  270. 230 Interpretation of Part: meaning of “Commissioners” and “officer”
  271. 259A Overview of Part
  272. 259B “Tax” means certain taxes on income and includes foreign tax etc
  273. 259BA References to equivalent provision to this Part under the law of a territory outside the United Kingdom
  274. 259BB Meaning of “payment”, “quasi-payment”, “payer”, “payee” etc
  275. 259BC The basic rules
  276. 259BD Chargeable companies in respect of CFCs and foreign CFCs
  277. 259BE Meaning of “hybrid entity”, “investor” and “investor jurisdiction”
  278. 259BF Meaning of “permanent establishment”
  279. 259C Overview of Chapter
  280. 259CA Circumstances in which the Chapter applies
  281. 259CB Hybrid or otherwise impermissible deduction/non-inclusion mismatches and their extent
  282. 259CC Interpretation of section 259CB
  283. 259CD Counteraction where the payer is within the charge to corporation tax for the payment period
  284. 259CE Counteraction where a payee is within the charge to corporation tax
  285. 259D Overview of Chapter
  286. 259DA Circumstances in which the Chapter applies
  287. 259DB Meaning of “hybrid transfer arrangement”, “underlying instrument” etc
  288. 259DC Hybrid transfer deduction/non-inclusion mismatches and their extent
  289. 259DD Interpretation of section 259DC
  290. 259DE The financial trader exclusion
  291. 259DF Counteraction where the payer is within the charge to corporation tax for the payment period
  292. 259DG Counteraction where a payee is within the charge to corporation tax
  293. 259E Overview of Chapter
  294. 259EA Circumstances in which the Chapter applies
  295. 259EB Hybrid payer deduction/non-inclusion mismatches and their extent
  296. 259EC Counteraction where the hybrid payer is within the charge to corporation tax for the payment period
  297. 259ED Counteraction where a payee is within the charge to corporation tax
  298. 259F Overview of Chapter
  299. 259FA Circumstances in which the Chapter applies
  300. 259FB Counteraction of the excessive PE deduction
  301. 259FC Meaning of excessive PE inclusion income
  302. 259G Overview of Chapter
  303. 259GA Circumstances in which the Chapter applies
  304. 259GB Hybrid payee deduction/non-inclusion mismatches and their extent
  305. 259GC Counteraction where the payer is within the charge to corporation tax for the payment period
  306. 259GD Counteraction where the investor is within the charge to corporation tax
  307. 259GE Counteraction where a hybrid payee is an LLP
  308. 259H Overview of Chapter
  309. 259HA Circumstances in which the Chapter applies
  310. 259HB Multinational payee deduction/non-inclusion mismatches and their extent
  311. 259HC Counteraction of the multinational payee deduction/non-inclusion mismatch
  312. 259I Overview of Chapter
  313. 259IA Circumstances in which the Chapter applies
  314. 259IB Counteraction where the investor is within the charge to corporation tax
  315. 259IC Counteraction where the hybrid entity is within the charge to corporation tax
  316. 259ICA Deemed dual inclusion income for the purposes of section 259IC
  317. 259ID Section 259ID income for the purposes of section 259IC
  318. 259J Overview of Chapter
  319. 259JA Circumstances in which the Chapter applies
  320. 259JB Counteraction where mismatch arises because of a dual resident company
  321. 259JC Counteraction where mismatch arises because of a relevant multinational and the UK is the parent jurisdiction
  322. 259JD Counteraction where mismatch arises because of a relevant multinational and is not counteracted in the parent jurisdiction
  323. 259JE Meaning of excessive PE inclusion income
  324. 259K Overview of Chapter
  325. 259KA Circumstances in which the Chapter applies
  326. 259KB Meaning of “dual territory double deduction”, “excessive PE deduction” and “PE jurisdiction”
  327. 259KC Denial of the relevant deduction in relation to the imported mismatch payment
  328. 259KD Deductions from dual inclusion income
  329. 259KE Limit on reduction under section 259KC
  330. 259KF Provision for cases within Part 4
  331. 259L Adjustments where suppositions cease to be reasonable
  332. 259LA Deduction from taxable total profits where an amount of ordinary income arises late
  333. 259LB Adjustments in light of later treatment for accounting purposes
  334. 259ZM Overview of Chapter
  335. 259ZMA Circumstances in which Chapter applies
  336. 259ZMB Claims for allocation of DII surplus
  337. 259ZMC The unused part of the DII surplus
  338. 259ZMD The unused part of the DII shortfall
  339. 259ZME Groups of companies
  340. 259ZMF Meaning of “dual inclusion income” and “counteraction amount”
  341. 259M Countering the effect of avoidance arrangements
  342. 259MA Meaning of “transparent fund”
  343. 259MB Application of Chapters 3, 4, 5 and 7
  344. 259MC Application of Chapter 9
  345. 259MD Application of Chapter 11
  346. 259N Meaning of “financial instrument”
  347. 259NA Meaning of “relevant investment fund”
  348. 259NB Control groups
  349. 259NC Related persons
  350. 259ND Meaning of “50% investment” and “25% investment”
  351. 259NDA Meaning of “qualifying institutional investor” etc
  352. 259NE Treatment of a person who is a member of a partnership
  353. 259NEZA Securitisation companies
  354. 259NEA Priority
  355. 259NEB Relevant debt relief circumstances: introductory
  356. 259NEC Release of debts
  357. 259NED Release of connected companies debts
  358. 259NEE Release of connected companies debts during creditor’s insolvency
  359. 259NEF Corporate rescue: debt released shortly after connection arises
  360. 259NF Definitions
  361. 354 Power to make regulations about tax treatment of participants
  362. 355 Meaning of “offshore fund”
  363. 356 Meaning of “mutual fund”
  364. 357 Exceptions to definition of “mutual fund”
  365. 358 Meaning of “relevant income-producing asset”
  366. 359 Power to make regulations about exceptions to definition of “mutual fund”
  367. 360 Treatment of umbrella arrangements
  368. 361 Treatment of arrangements comprising more than one class of interest
  369. 362 Meaning of “participant” and “participation”
  370. 363 Meaning of “umbrella arrangements” and “part of umbrella arrangements”
  371. 363A Residence of undertakings for collective investment in transferable securities and alternative investment funds
  372. 364 Oil activities
  373. 365 Alternative finance arrangements
  374. 366 Power to amend the alternative finance provisions
  375. 367 Leasing arrangements: finance leases and loans
  376. 368 Sale and lease-back etc
  377. 369 Factoring of income etc
  378. 370 UK representatives of non-UK residents
  379. 371 Miscellaneous relocations
  380. 371AA Overview of Part
  381. 371BA Introduction to the CFC charge
  382. 371BB The CFC charge gateway
  383. 371BC Charging the CFC charge
  384. 371BD Chargeable companies
  385. 371BE Companies which are managers of offshore funds etc
  386. 371BF Companies which are participants in offshore funds
  387. 371BG Companies holding shares as trading assets etc
  388. 371BH Companies carrying on BLAGAB
  389. 371BI Banking companies
  390. 371CA Does Chapter 4 apply?
  391. 371CB Does Chapter 5 apply?
  392. 371CC Incidental non-trading finance profits: the 5% rule
  393. 371CD Incidental non-trading finance profits: the further 5% rule
  394. 371CE Does Chapter 6 apply?
  395. 371CEA Section 371CE: meaning of “group treasury company”
  396. 371CF Does Chapter 7 apply?
  397. 371CG Does Chapter 8 apply?
  398. 371DA Introduction to Chapter
  399. 371DB The steps
  400. 371DC Exclusion: UK activities a minority of total activities
  401. 371DD Exclusion: economic value
  402. 371DE Exclusion: independent companies' arrangements
  403. 371DF Exclusion: trading profits (the basic rule)
  404. 371DG Exclusion: trading profits (business premises condition)
  405. 371DH Exclusion: trading profits (income condition)
  406. 371DI Exclusion: trading profits (management expenditure condition)
  407. 371DJ Exclusion: trading profits (IP condition)
  408. 371DK Exclusion: trading profits (export of goods condition)
  409. 371DL Exclusion: trading profits (anti-avoidance)
  410. 371EA The basic rule
  411. 371EB UK activities
  412. 371EC Capital investment from the UK
  413. 371ED Arrangements in lieu of dividends etc to UK resident companies etc
  414. 371EE Leases to UK resident companies etc
  415. 371FA The basic rule
  416. 371FB Qualifying loan relationships
  417. 371FC Loans from foreign permanent establishments of UK resident companies
  418. 371FD Exclusion: banking business
  419. 371FE Exclusion: insurance business
  420. 371GA The basic rule
  421. 371HA The basic rule
  422. 371IA The basic rule
  423. 371IB Loans funded out of qualifying resources
  424. 371IC What is the “qualifying value” of “relevant pre-acquisition funds or other assets”?
  425. 371ID The 75% exemption
  426. 371IE The “matched interest profits” exemption
  427. 371IF Determining the profits of a qualifying loan relationship
  428. 371IG What is a “qualifying loan relationship”?
  429. 371IH Exclusions from definition of “qualifying loan relationship”
  430. 371II Power to amend definitions
  431. 371IJ Claims
  432. 371JA Introduction to Chapter
  433. 371JB The basic rule
  434. 371JC When does an exempt period begin?
  435. 371JD How long is an exempt period?
  436. 371JE Adjustment of profits passing through the CFC charge gateway
  437. 371JF Anti-avoidance
  438. 371JG Amendment of company tax returns
  439. 371KA Introduction to Chapter
  440. 371KB The basic rule
  441. 371KC How to determine the territory in which a CFC is resident
  442. 371KD What is “the threshold amount”?
  443. 371KE Category A income: the basic rule
  444. 371KF Category A income: permanent establishments in excluded territories
  445. 371KG Category B income
  446. 371KH Category C income
  447. 371KI Category D income
  448. 371KJ The IP condition
  449. 371LA Introduction to Chapter
  450. 371LB The basic rule
  451. 371LC Anti-avoidance
  452. 371MA Introduction to Chapter
  453. 371MB The basic rule
  454. 371MC Anti-avoidance
  455. 371NA Introduction to Chapter
  456. 371NB The basic rule
  457. 371NC Reductions to “the local tax amount”
  458. 371ND What are “designer rate tax provisions”?
  459. 371NE How to determine “the corresponding UK tax”
  460. 371OA Application of Chapter
  461. 371OB Provision about interpretation
  462. 371OC “Relevant interests” of UK resident companies
  463. 371OD “Relevant interests” of persons related to UK resident companies
  464. 371OE Other “relevant interests”
  465. 371PA What is “creditable tax”?
  466. 371QA Application of Chapter
  467. 371QB Provision about interpretation
  468. 371QC The basic rules
  469. 371QD Apportionments to be made in proportion to shareholding
  470. 371QE Indirect shareholdings
  471. 371QF Variable shareholdings
  472. 371QG Anti-avoidance
  473. 371RA Overview of Chapter
  474. 371RB Legal and economic control
  475. 371RC Legal and economic control: the 40% rule
  476. 371RD Legal and economic control: supplementary provision
  477. 371RE Control determined by reference to accounting standards
  478. 371RF Power to amend section 371RE etc
  479. 371RG Companies in which a UK resident company has more than a 50% investment
  480. 371SA Overview of Chapter
  481. 371SB What are “assumed taxable total profits” and “assumed total profits”?
  482. 371SC What are “the corporation tax assumptions”?
  483. 371SD UK residence etc
  484. 371SE Close company
  485. 371SF Claims and elections
  486. 371SG Disapplication of assumption in section 371SF(1)
  487. 371SH Elections under section 9A of CTA 2010
  488. 371SI Modification of sections 6 and 7 of CTA 2010
  489. 371SJ Elections for leases to be treated as long funding leases
  490. 371SK Intangible fixed assets
  491. 371SKA Restrictions on certain deductions: deductions allowances
  492. 371SL Group relief etc
  493. 371SLA Corporate interest restriction
  494. 371SM Capital allowances
  495. 371SN Unremittable overseas income
  496. 371SO Tax advantages
  497. 371SP Disguised interest: application of Chapter 2A of Part 6 of CTA 2009
  498. 371SQ Shares accounted for as liabilities: application of section 521C of CTA 2009
  499. 371SR Double taxation relief: countering effect of avoidance arrangements
  500. 371TA The basic rule
  501. 371TB How to determine the territory in which the CFC is resident
  502. 371TC Elections and designations about residence
  503. 371UA Introduction to Chapter
  504. 371UB Application of the Taxes Acts to the CFC charge
  505. 371UBA Payments in respect of a charge on a banking company: information to be provided
  506. 371UC Just and reasonable apportionments
  507. 371UD Relief against sum charged
  508. 371UE Appeals affecting more than one person
  509. 371UF Recovery of sum charged from other UK resident companies
  510. 371VA Definitions
  511. 371VB Accounting periods
  512. 371VC Accounting profits
  513. 371VD Adjustments to accounting profits
  514. 371VE Cell companies etc
  515. 371VF Connected persons etc
  516. 371VG Finance profits
  517. 371VH Interests in companies
  518. 371VI Property business profits
  519. 371VIA Relevant finance leases
  520. 371VJ Regulations
  521. 372 Overview
  522. 373 Meaning of “subject to interest restrictions”, “the total disallowed amount” etc
  523. 374 Interest restriction returns
  524. 375 Disallowance of deductions: full interest restriction return submitted
  525. 376 Disallowance of deductions: no return, or non-compliant return, submitted
  526. 377 Disallowance of deductions: identification of the tax-interest amounts to be left out of account
  527. 378 Disallowed tax-interest expense amounts carried forward
  528. 379 Reactivation of interest
  529. 380 Reactivation of deductions: identification of the tax-interest amounts to be brought into account
  530. 381 Set-off of disallowances and reactivations in the same accounting period
  531. 382 The tax-interest expense amounts of a company
  532. 383 Relevant loan relationship debits
  533. 384 Relevant derivative contract debits
  534. 385 The tax-interest income amounts of a company
  535. 386 Relevant loan relationship credits
  536. 387 Relevant derivative contract credits
  537. 388 Double taxation relief
  538. 389 The “net tax-interest expense” or “net tax-interest income” of a company
  539. 390 The worldwide group's aggregate net tax-interest expense and income
  540. 391 Meaning of “impairment loss”
  541. 391A Amounts capitalised in carrying value of intangible fixed assets
  542. 392 The interest capacity of a worldwide group for a period of account
  543. 393 Amount of interest allowance for a period that is “available” in a later period
  544. 394 When interest allowance is “used”
  545. 395 Amount of interest allowance for a period of account that is “unexpired” in later period
  546. 395A Carry forward of interest allowance: new holding company
  547. 396 The interest allowance of a worldwide group for a period of account
  548. 397 Basic interest allowance calculated using fixed ratio method
  549. 398 Basic interest allowance calculated using group ratio method
  550. 399 The group ratio percentage
  551. 400 The debt cap
  552. 400A Carry forward of excess debt cap: new holding company
  553. 401 Effect of group ratio (blended) election on group ratio percentage
  554. 402 Effect of group ratio (blended) election on group ratio debt cap
  555. 403 Calculations under sections 401 and 402: investor worldwide groups
  556. 404 Meaning of “investor”, “related party investor” and investor's “share”
  557. 405 The aggregate tax-EBITDA of a worldwide group
  558. 406 The tax-EBITDA of a company
  559. 407 Amounts not brought into account in determining a company's tax-EBITDA
  560. 408 Excluded relevant intangibles debits and excluded relevant intangibles credits
  561. 409 Double taxation relief
  562. 410 Net group-interest expense
  563. 411 “Relevant expense amount” and “relevant income amount”
  564. 412 Section 411: interpretation
  565. 413 Adjusted net group-interest expense
  566. 414 Qualifying net group-interest expense
  567. 415 Section 414: interpretation
  568. 416 Group-EBITDA
  569. 417 The capital (expenditure) adjustment
  570. 418 The capital (fair value movement) adjustment
  571. 419 The capital (disposals) adjustment
  572. 420 Derivative contracts subject to fair value accounting
  573. 421 Derivative contracts subject to fair value accounting: interpretation
  574. 422 Group-EBITDA (chargeable gains) election
  575. 423 Capitalised interest brought into account for tax purposes in accordance with GAAP
  576. 424 Employers' pension contributions
  577. 424A Unpaid employees’ remuneration
  578. 425 Employee share acquisitions
  579. 426 Changes in accounting policy
  580. 427 Group interest and group-EBITDA
  581. 428 Section 427: associated worldwide groups
  582. 429 Meaning of “non-consolidated associate”
  583. 430 Interest allowance (consolidated partnerships) election
  584. 431 Interpretation of Chapter
  585. 432 Overview of Chapter
  586. 433 Meaning of “qualifying infrastructure company”
  587. 434 Elections under section 433
  588. 435 Group elections modifying the operation of sections 433 and 434
  589. 436 Meaning of “qualifying infrastructure activity”
  590. 437 Section 436: supplementary
  591. 438 Exemption for interest payable to third parties etc
  592. 438A Application of section 438: certain creditors treated as qualifying infrastructure companies
  593. 439 Exemption in respect of certain pre-13 May 2016 loan relationships
  594. 440 Loans etc made by qualifying infrastructure companies to be ignored
  595. 441 Tax-EBITDA of qualifying infrastructure company to be nil
  596. 442 Amounts of qualifying infrastructure company left out of account for other purposes
  597. 443 Interest capacity for group with qualifying infrastructure company etc
  598. 444 Joint venture companies
  599. 445 Joint venture groups
  600. 446 Joint ventures: supplementary
  601. 447 Partnerships and other transparent entities
  602. 448 Decommissioning
  603. 449 Minor definitions for purposes of this Chapter
  604. 450 Banking companies
  605. 451 Oil and gas
  606. 452 Real Estate Investment Trusts
  607. 453 Insurance entities
  608. 454 Members of Lloyd's
  609. 454A Investments held by investment managers
  610. 455 Shipping companies subject to tonnage tax
  611. 456 Creditor relationships of companies determined on basis of fair value accounting
  612. 457 Elections under section 456: deemed debits and credits
  613. 458 Co-operative and community benefit societies etc
  614. 459 Charities
  615. 460 Long funding operating leases and finance leases
  616. 461 Counteracting effect of avoidance arrangements
  617. 462 Expressions relating to “related parties”: introduction
  618. 463 Whether a person is generally a “related party” of another
  619. 464 Meaning of “25% investment”
  620. 465 Attribution of rights and interests
  621. 466 Certain loan relationships etc to be treated as made between related parties
  622. 467 Holdings of debt and equity in same proportions
  623. 468 Debts with same rights where unrelated parties hold more than 50%
  624. 469 Debt restructuring
  625. 470 Ordinary independent financing arrangements by banks and others
  626. 471 Loans made by relevant public bodies
  627. 472 Finance leases granted before 20 March 2017
  628. 473 Meaning of “a worldwide group”, “ultimate parent” etc
  629. 474 Interpretation of section 473: “relevant entity”
  630. 475 Meaning of “non-consolidated subsidiary” and “consolidated subsidiary”
  631. 476 Continuity of identity of a worldwide group through time
  632. 477 Treatment of stapled entities
  633. 478 Treatment of business combinations
  634. 479 “Financial statements” of a worldwide group
  635. 480 “Period of account” of worldwide group
  636. 481 Actual financial statements not drawn up on acceptable principles
  637. 482 Actual financial statements drawn up on acceptable principles but consolidating wrong subsidiaries
  638. 483 Actual financial statements covering more than one worldwide group
  639. 484 No actual financial statements: ultimate parent draws up financial statements
  640. 485 No actual financial statements: other cases
  641. 486 Election altering period of account deemed under section 485
  642. 487 Actual financial statements ignored if for too long a period or too late
  643. 488 Meaning of “IAS financial statements”
  644. 489 References to amounts recognised in financial statements
  645. 490 Meaning of “relevant accounting period”
  646. 491 Meaning of “relevant public body”
  647. 492 Meaning of “UK group company”
  648. 493 Embedded derivatives
  649. 494 Other interpretation
  650. 495 Financial statements: different treatment by group or members
  651. 496 Parties to capital market arrangements
  652. 497 Change in accounting standards
  653. 498 Regulations
  654. 499 Orders and regulations
  655. 500 Abbreviated references to Acts
  656. 501 Minor and consequential amendments
  657. 502 Transitional provisions and savings
  658. 503 Repeals and revocations
  659. 504 Index of defined expressions
  660. 505 Extent
  661. 506 Commencement
  662. 507 Short title
  663. Schedule A1 Assessment of unassessed transfer pricing profits: partnerships and Lloyd’s syndicates
  664. SCHEDULE 1 Oil activities: new Chapter 16A of Part 2 of ITTOIA 2005
  665. SCHEDULE 2 Alternative finance arrangements
  666. SCHEDULE 3 Leasing arrangements: finance leases and loans
  667. SCHEDULE 4 Sale and lease-back etc: new Part 12A of ITA 2007
  668. SCHEDULE 5 Factoring of income etc: new Chapters 5B and 5C of Part 13 of ITA 2007
  669. SCHEDULE 6 UK Representatives of non-UK residents
  670. SCHEDULE 7 Miscellaneous relocations
  671. SCHEDULE 7A Interest restriction returns
  672. SCHEDULE 8 Minor and consequential amendments
  673. SCHEDULE 9 Transitionals and savings etc
  674. SCHEDULE 10 Repeals and revocations
  675. SCHEDULE 11 Index of defined expressions used in Parts 2 to 8

Proposed changes to this act

No one has proposed a change to this act yet.

675 provisions

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.

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371KD What is “the threshold amount”?

(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).

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371KE Category A income: the basic rule

(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.

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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.

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371KG Category B income

(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.

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371KH Category C income

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).

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371KI Category D income

(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.

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371KJ The IP condition

(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.

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371LA Introduction to Chapter

This Chapter sets out an exemption called “the low profits exemption” for the purposes of section 371BA(2)(b).

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371LB The basic rule

(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.

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371LC Anti-avoidance

(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).

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371MA Introduction to Chapter

This Chapter sets out an exemption called “the low profit margin exemption” for the purposes of section 371BA(2)(b).

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371MB The basic rule

(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.

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371MC Anti-avoidance

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.

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371NA Introduction to Chapter

This Chapter sets out an exemption called “the tax exemption” for the purposes of section 371BA(2)(b).

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371NB The basic rule

(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.

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371NC Reductions to “the local tax amount”

(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.

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371ND What are “designer rate tax provisions”?

(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.

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371NE How to determine “the corresponding UK tax”

(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.

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371OA Application of Chapter

This Chapter applies for the purpose of determining the persons who have “relevant interests” in a CFC for the purposes of step 1 in section 371BC(1).

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371OB Provision about interpretation

(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.

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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.

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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.

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371OE Other “relevant interests”

(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.

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371PA What is “creditable tax”?

(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.

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371QA Application of Chapter

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).

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371QB Provision about interpretation

(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.

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371QC The basic rules

(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.

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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.

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371QE Indirect shareholdings

(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).

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371QF Variable shareholdings

(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.

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371QG Anti-avoidance

(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).

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371RA Overview of Chapter

(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.

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371RB Legal and economic control

(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.

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371RC Legal and economic control: the 40% rule

(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.

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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.

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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)).

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371RF Power to amend section 371RE etc

(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).

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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).

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371SA Overview of Chapter

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.

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