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Taxation (International and Other Provisions) Act 2010

Type Public General Act

Publication 2010-03-18

Last updated 2026-09-11

State In force

Department Statute Law Database

Source legislation.gov.uk

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articles Not indexed

An Act to restate, with minor changes, certain enactments relating to tax; to make provision for purposes connected with the restatement of enactments by other tax law rewrite Acts; and for connected purposes.

Reform history JSON API

(a) fall within section 371EC (capital investment from the UK), and

(b) do not fall within section 371EB (UK activities).

(5) The extent to which those profits are “exempt” is to be determined—

(a) firstly, by applying either section 371IB or section 371ID to each of the CFC's qualifying loan relationships, and

(b) secondly, by applying section 371IE (if relevant).

(6) Section 371IF sets out how to determine the profits of a qualifying loan relationship.

(7) Sections 371IG to 371II define “qualifying loan relationship” etc.

(8) Section 371IJ contains provision about claims under this Chapter.

(9) In this Chapter references to the CFC's non-trading finance profits are to those profits excluding any profits—

(a) falling within section 371CB(3) or (4) or Chapter 8 (solo consolidation), or

(b) arising from a relevant finance lease.

(10) In this Chapter—

(a) “loan relationship” has the meaning given by section 302(1) of CTA 2009 (and does not include anything which, although not falling within section 302(1), is treated for any purpose as if it were a loan relationship), and

(b) other terms used which are defined in Part 5 of CTA 2009 are to be read accordingly.

(11) See section 371CB(8) which deals with the interaction between this Chapter and section 371CB and Chapter 5 in the case of a chargeable company which makes a claim under this Chapter.

Loans funded out of qualifying resources

371IB

(1) This section applies to a qualifying loan relationship if company C's claim under this Chapter states that this section is to apply to the qualifying loan relationship.

(2) X% of the profits of the qualifying loan relationship are exempt if company C's claim establishes—

(a) that, at all times during the relevant period, at least X% of the principal outstanding on the relevant loan (as that may vary from time to time during the relevant period) is funded by the CFC wholly out of qualifying resources, and

(b) that the ultimate debtor in relation to the qualifying loan relationship (see section 371IG(2) to (7)) is resident at all times during the relevant period in one territory only and that its territory of residence does not change at any time during the relevant period.

(3) “X%” is the percentage specified in company C's claim for the purposes of this section in relation to the qualifying loan relationship (which may be 100%).

(4) “The relevant period” means—

(a) the accounting period, or

(b) if for any part of the accounting period no principal is outstanding on the relevant loan, the part of the accounting period during which there is principal outstanding.

(5) “The relevant loan” means the loan which is the subject of the qualifying loan relationship.

(6) “Qualifying resources” means—

(a) profits of the CFC's business so far as it consists of the making of loans to relevant members of the CFC group which are used solely for the purposes of the business of the CFC group in the relevant territory, or

(b) funds or other assets received by the CFC in relation to shares held by the CFC in, or issued by the CFC to, members of the CFC group.

(7) Funds or other assets received by the CFC fall within subsection (6)(b) only so far as they derive (directly or indirectly) from—

(a) profits of the business of the CFC group in the relevant territory,

(b) the qualifying value of relevant pre-acquisition funds or other assets (see section 371IC), or

(i) the shares are shares in a member of the CFC group (“the parent member”) which is not the 75% subsidiary of any company,

(ii) the shares are ordinary shares which are not redeemable, and

(iii) the shares are issued to persons who are not members of the CFC group.

(8) Subsection (9) applies if the qualifying loan relationship is made under, or is otherwise connected (directly or indirectly) with, an arrangement under which a member of the CFC group incurs a debt in the United Kingdom to—

(a) a non-UK resident person, or

(b) a UK resident person who is not a member of the CFC group.

(9) It is to be assumed for the purposes of subsection (2) that, at all times during the relevant period, the amount of funds or other assets—

(a) out of which the principal outstanding on the relevant loan is funded by the CFC, and

(b) which are not qualifying resources,

is no less than the amount of the debt mentioned in subsection (8).

(9A) Subsection (9) does not apply if the debt incurred by the member of the CFC group as mentioned in subsection (8) represents the principal on a loan made to the member to which subsection (9B) or (9D) applies.

(9B) This subsection applies to a loan if the member repays it within 48 hours of the loan being made.

(9C) But subsection (9B) does not apply to a loan if the repayment of the loan within the 48 hours occurs under, or is connected (directly or indirectly) with, an arrangement the main purpose, or one of the main purposes, of which is to ensure that subsection (9) does not apply because of—

(a) the loan, or

(b) any other debt which a member of the CFC group incurs (or is expected to incur) in the United Kingdom.

(9D) This subsection applies to a loan if—

(a) there is an issue of shares which meets the requirements of subsection (7)(c)(i) to (iii),

(b) the loan was made before the issue of shares but with the expectation that it would be repaid by the member out of funds deriving (directly or indirectly) from the issue of shares,

(c) the loan is repaid by the member out of such funds within the period of 6 months beginning with the day on which the loan was made, and

(d) the loan—

(i) was made by a person who was not a member of the CFC group, and

(ii) was not made (wholly or partly nor directly or indirectly) out of funds or other assets provided by a member of the CFC group.

(10) For the purposes of this section and section 371IC—

(a) subject to subsections (11) and (12), “the CFC group”, as at any time, means the CFC taken together with the companies with which it is connected at that time,

(b) a member of the CFC group is “relevant” if it is resident in the relevant territory and no other territory,

(d) references to the business of the CFC group in the relevant territory do not include the making of loans to persons resident outside the relevant territory,

(e) references to the profits of the business of the CFC group in the relevant territory do not include—

(i) profits arising (directly or indirectly) from funds or other assets received by relevant members of the CFC group in relation to shares held by them in members of the CFC group which are not relevant members, or

(ii) so far as not covered by sub-paragraph (i), profits arising (directly or indirectly) from the business of the CFC group in any territory outside the relevant territory, and

(f) section 931U of CTA 2009 (definitions of “ordinary share” and “redeemable”) applies as it applies for the purposes of Part 9A of CTA 2009 (company distributions).

(11) If the CFC is controlled by one UK resident company only (“the controller”), in relation to any time before the CFC came to be controlled by the controller, except in subsection (6), references to the CFC group include references to the controller taken together with any companies with which it is connected at that time.

(12) If the CFC is controlled by two or more UK resident companies which are all connected with each other (“the controllers”), in relation to any time—

(a) before which the CFC came to be controlled by the controllers, and

(b) at which the controllers (or those of the controllers which exist at that time) are all connected with each other,

except in subsection (6), references to the CFC group include references to the controllers (or those of the controllers which exist) taken together with any other companies with which they are all connected at that time.

What is the “qualifying value” of “relevant pre-acquisition funds or other assets”?

371IC

(1) This section applies for the purposes of section 371IB(7)(b).

(2) It applies if—

(a) a member of the CFC group acquires shares in a company (“the target company”) from persons who are not members of that group (“the unconnected persons”),

(b) in consideration for the acquisition of the shares, a member of the CFC group (“the parent member”) which is not the 51% subsidiary of any company issues shares to the unconnected persons, and

(c) the value of the consideration given for the acquisition of the shares by the parent member and any other members of the CFC group represents wholly or partly the value or a part of the value of any funds or other assets held by the target company.

(3) Those funds or other assets are “relevant pre-acquisition funds or other assets” and, subject to what follows, their value or the part of their value represented by the value of the consideration is their “qualifying value”.

(4) The qualifying value is to be reduced by Y% if one or both of the following paragraphs applies—

(a) the issue of shares by the parent member to the unconnected persons represents only part of the consideration given for the acquisition of the shares in the target company;

(b) in connection with the acquisition of the shares in the target company, an extraordinary distribution is made to persons holding shares in the parent member.

(5) “Y%” is given by the following formula—

$$100 % × B A + B$where—A is the value of the consideration which is in the form of the issue of shares by the parent member to the unconnected persons, andB is, as the case may be—the value of the consideration which is not in the form of the issue of shares by the parent member to the unconnected persons,the value of the extraordinary distribution, orthe total of the values given by paragraphs (a) and (b).$

The 75% exemption

371ID

(1) This section applies to a qualifying loan relationship if section 371IB does not apply to the qualifying loan relationship.

(2) 75% of the profits of the qualifying loan relationship are exempt.

The “matched interest profits” exemption

371IE

(1) This section applies if—

(a) there are profits of qualifying loan relationships which are not exempt after sections 371IB and 371ID have been applied to each qualifying loan relationship,

(b) the relevant corporation tax accounting period (as defined in section 371BC(3)) of company C is a relevant accounting period of it in relation to a period of account of a worldwide group,

(d) apart from this section, the profits mentioned in paragraph (a) would be included in the chargeable profits of the CFC.

(2) In this section “the matched interest profits” means so much of the profits mentioned in subsection (1)(a) as remain after excluded credits and excluded debits are left out of account.

(3) If the aggregate net tax-interest expense of the group for the period is nil, all of the matched interest profits are exempt.

(4) Otherwise, there is a more limited exemption if the relevant proportion of the matched interest profits apportioned to C or other relevant chargeable companies exceeds the aggregate net tax-interest expense of the group for the period.

(5) For the purposes of this section “the relevant proportion of the matched interest profits apportioned to C or other relevant chargeable companies” is determined as follows.

Step 1 For each relevant chargeable company (including C) determine the percentage (P%) of the CFC's chargeable profits that are apportioned to the company under step 5 of section 371BC(1).

Step 2 For each relevant chargeable company (including C) multiply P% by the matched interest profits.

Step 3 The sum of the amounts for each company found under step 2 is “the relevant proportion of the matched interest profits apportioned to C or other relevant chargeable companies”.

(6) For the purposes of this section a company is a relevant chargeable company if the relevant corporation tax accounting period of the company is a relevant accounting period in relation to the period of account of the group.

(7) The limited exemption is given effect by treating the matched interest profits as equal to the amount found by multiplying the amount that they would otherwise be by—

$$E RPMIP$where—E is the amount of the excess mentioned in subsection (4), andRPMIP is the relevant proportion of the matched interest profits apportioned to C or other relevant chargeable companies.$

(8) For the purposes of this section the aggregate net tax-interest expense of a worldwide group for a period of account is determined in accordance with Part 10 (corporate interest restriction) but without regard to debits, credits or other amounts arising from—

(a) banking business carried on by a company within the charge to corporation tax, or

(b) insurance business carried on by a company within the charge to corporation tax.

(9) For the purposes of this section—

“excluded credit” has the meaning given by section 386(3),

“excluded debit” has the meaning given by section 383(3), and

“period of account”, “relevant accounting period” and “worldwide group” have the same meanings as in Part 10.

Determining the profits of a qualifying loan relationship

371IF

Take the following steps to determine the profits of a qualifying loan relationship for the purposes of this Chapter.

Step 1 Determine the credits from the qualifying loan relationship which are brought into account in determining the CFC's non-trading finance profits. The result is “the step 1 credits”.

Step 2 Determine the credits and debits which are brought into account in determining the CFC's non-trading finance profits so far as they—are from any derivative contract or other arrangement (other than a qualifying loan relationship) entered into by the CFC as a hedge of risk in connection with the qualifying loan relationship, andare attributable to the hedge of risk.If the credits exceed the debits add the excess to the step 1 credits and if the debits exceed the credits subtract the deficit from the step 1 credits. The result is “the step 2 credits”.

Step 3 Allocate to the qualifying loan relationship a just and reasonable proportion of the credits from the CFC's relevant debtor relationships which are brought into account in determining the CFC's non-trading finance profits (so far as not reflected in the step 2 credits). Add the credits to the step 2 credits. The result is “the step 3 credits”. A debtor relationship of the CFC is “relevant” if the loan which is the subject of it is used by the CFC to fund the loan which is the subject of the qualifying loan relationship

Step 4 Allocate to the qualifying loan relationship a just and reasonable proportion of the credits and debits which are brought into account in determining the CFC's non-trading finance profits so far as they—are from any derivative contract or other arrangement (other than a qualifying loan relationship or a relevant debtor relationship) entered into by the CFC as a hedge of risk in connection with a relevant debtor relationship, andare attributable to the hedge of risk.If the credits exceed the debits add the excess to the step 3 credits and if the debits exceed the credits subtract the deficit from the step 3 credits. The result is “the step 4 credits”.

Step 5 Allocate to the qualifying loan relationship a just and reasonable proportion of—the debits from the CFC's loan relationships which are brought into account in determining the CFC's non-trading finance profits (so far as not reflected in the step 4 credits), andany amounts set off under Chapter 16 or Chapter 16A of Part 5 of CTA 2009 (non-trading deficits) against amounts which, apart from the set off, would be included in the CFC's non-trading finance profits.Reduce the step 4 credits accordingly to give the profits of the qualifying loan relationship.

What is a “qualifying loan relationship”?

371IG

(1) In this Chapter “qualifying loan relationship” means a creditor relationship of the CFC—

(a) the ultimate debtor in relation to which is a qualifying company, and

(b) which is not prevented from being a qualifying loan relationship by section 371IH.

(2) In this Chapter “the ultimate debtor”, in relation to a creditor relationship of the CFC, means the debtor in relation to the creditor relationship.

This is subject to what follows.

(3) Subsection (4) or (5) (as the case may be) applies if—

(a) there is a loan (“loan A”) which is the subject of a creditor relationship of the CFC,

(b) loan A, or a part of loan A, is made and used to fund (directly or indirectly) another loan (“loan B”) to a person (“P”), and

(4) If all of loan A is made and used to fund (directly or indirectly) loan B, the ultimate debtor in relation to the CFC's creditor relationship mentioned in subsection (3)(a) is P.

(5) If only part of loan A is made and used to fund (directly or indirectly) loan B—

(a) that part of loan A is to be treated for the purposes of this Chapter as a separate loan giving rise to a separate creditor relationship of the CFC, and

(b) the ultimate debtor in relation to that separate creditor relationship is P.

(6) If the requirement of subsection (3)(c) is met in relation to a part of loan B only, in subsections (4) and (5) references to loan B are to be read as references to that part of loan B only.

(7) But neither subsection (4) nor subsection (5) applies if—

(a) the debtor (“D”) in relation to the CFC's creditor relationship is a qualifying company the main business of which is banking business or insurance business,

(b) the use of loan A, or the part of loan A, as mentioned in subsection (3)(b) occurs in the ordinary course of D's banking business or insurance business (as the case may be), and

(8) In this section “qualifying company” means a company which—

(a) is connected with the CFC, and

(b) is controlled by the UK resident person or persons who control the CFC.

Exclusions from definition of “qualifying loan relationship”

371IH

(1) If the ultimate debtor in relation to a creditor relationship of the CFC is a non-UK resident company, the creditor relationship cannot be a qualifying loan relationship so long as some or all of the company's debits—

(a) are being brought into account for the purposes of Chapter 4 of Part 2 of CTA 2009 (UK permanent establishments of non-UK resident companies) in determining the company's profits which are attributable to a UK permanent establishment, or

(b) are being brought into account for the purposes of Part 3 of ITTOIA 2005 (property income) in determining the company's profits of a UK property business.

(2) If the ultimate debtor in relation to a creditor relationship of the CFC is a UK resident company, the creditor relationship can be a qualifying loan relationship only so long as—

(a) an election under section 18A of CTA 2009 (exemption for profits or losses of foreign permanent establishments) is in effect in relation to the company, and

(b) all the company's debits are being brought into account for the purpose of determining exemption adjustments in relation to the company under that section.

(3) If the ultimate debtor in relation to a creditor relationship of the CFC is another CFC, the creditor relationship cannot be a qualifying loan relationship so long as—

(a) some or all of the other CFC's debits are relevant to the application of Chapters 3 to 8 or Chapter 12 in the case of the other CFC, and

(b) as a result of that, the CFC charge is not being charged in relation to the other CFC's accounting periods or any sums charged are less than what they would otherwise have been.

(4) In subsections (1) to (3) references to the debits of the company which is the ultimate debtor in relation to a creditor relationship of the CFC are references to—

(a) the ultimate debtor's debits in relation to the loan which is the subject of the CFC's creditor relationship, or

(b) if the ultimate debtor is determined in accordance with section 371IG(4) or (5), the ultimate debtor's debits in relation to loan B.

(5) A creditor relationship of the CFC cannot be a qualifying loan relationship if it is, or is connected (directly or indirectly) to, an arrangement the main purpose, or one of the main purposes, of which is for the ultimate debtor in relation to the creditor relationship to provide (directly or indirectly) funding for—

(a) a loan to another person, or

(b) so far as not covered by paragraph (a), an arrangement intended to produce for any person a return in relation to any amount which it is reasonable to suppose would be a return by reference to the time value of that amount of money.

(6) Subsection (5) does not apply if—

(a) the main business of the ultimate debtor is banking business or insurance business, and

(b) the funding for the loan or arrangement would be provided in the ordinary course of the ultimate debtor's banking business or insurance business (as the case may be).

(7) A creditor relationship of the CFC cannot be a qualifying loan relationship if—

(a) the main business of the ultimate debtor in relation to the creditor relationship is banking business or insurance business, and

(b) the creditor relationship is, or is connected (directly or indirectly) to, an arrangement the main purpose, or one of the main purposes, of which is for the ultimate debtor to provide (directly or indirectly) funding for a loan or arrangement as mentioned in subsection (5)(a) or (b) in order to obtain a tax advantage for the ultimate debtor.

(8) A creditor relationship of the CFC cannot be a qualifying loan relationship if the loan which is the subject of the creditor relationship is made to any extent (other than a negligible one) out of funds received by the CFC (directly or indirectly)—

(a) from a relevant UK connected company other than by way of a loan, or

(b) as a result of an arrangement which gives rise to a deduction in the calculation of the profits of a trade of a relevant UK connected company (apart from the ultimate debtor) for the purposes of Part 3 of CTA 2009 (trading income).

(9) For the purposes of subsection (8) a company is “relevant UK connected” if—

(a) the company is a UK resident company connected with the CFC,

(b) the company's main business is banking business or insurance business, and

(9A) Subsection (9B) applies to a creditor relationship of a CFC if—

(a) a creditor relationship (“the UK creditor relationship”) of a UK connected company is made where the debtor is a non-UK resident company connected with the UK connected company,

(b) subsequently, an arrangement (“the relevant arrangement”) is made directly or indirectly in connection with the UK creditor relationship, and

(i) the relevant UK credits of a UK connected company for a corporation tax accounting period of the company are lower than they would be if the relevant arrangement had not been made, or

(ii) the relevant UK debits of a UK connected company for a corporation tax accounting period of the company are greater than they would be if the relevant arrangement had not been made.

(9B) The CFC's creditor relationship cannot be a qualifying loan relationship if it is, or is connected (directly or indirectly) to, the relevant arrangement.

(9C) Subsection (9D) applies for the purposes of subsection (9A)(c)(i) and (ii) in determining what the relevant UK credits or debits of a UK connected company for a corporation tax accounting period would be if the relevant arrangement had not been made.

(9D) Assume that, at all times after the relevant time, the UK creditor relationship remains in place on the same terms as it had at the relevant time.

(9E) In subsections (9A) to (9D)—

“corporation tax accounting period” means an accounting period for corporation tax purposes,

“the relevant time” means the time immediately before—the time when the relevant arrangement is made, orif earlier, the time when the UK creditor relationship ends,

“relevant UK credits”, in relation to a UK connected company, means credits which the company has under Part 5 or 7 of CTA 2009,

“relevant UK debits”, in relation to a UK connected company, means debits which the company has under Part 5 or 7 of CTA 2009, and

“UK connected company” means a UK resident company which—is connected with the CFC, orwas connected with a company with which the CFC is connected.

(10) A creditor relationship of the CFC cannot be a qualifying loan relationship if—

(a) the CFC receives relevant UK funds or other assets for the purpose of funding the loan which is the subject of the CFC's creditor relationship,

(b) the provision of the relevant UK funds or other assets is itself funded (wholly or partly and directly or indirectly) by a loan made to a UK connected company by—

(i) a non-UK resident person, or

(ii) a UK resident person who is not connected with the CFC,

(c) the relevant loan is used to any extent (other than a negligible one) to repay wholly or partly another loan made to the ultimate debtor by a person not connected with the ultimate debtor, and

(d) the events mentioned in paragraphs (a) to (c) take place under, or are otherwise connected (directly or indirectly) with, an arrangement the main purpose, or one of the main purposes, of which is to obtain a tax advantage for any person.

(11) In subsection (10)—

(a) “relevant UK funds or other assets” and “UK connected company” have the same meaning as in section 371EC, and

(b) in paragraph (c) “the relevant loan” means—

(i) the loan which is the subject of the CFC's creditor relationship, or

(ii) if the ultimate debtor is determined in accordance with section 371IG(4) or (5), loan B.

(12) In subsections (4)(b) and (11)(b)(ii) references to loan B do not include any part of loan B—

(a) which loan A is not made and used to fund, or

(b) in relation to which the requirement of section 371IG(3)(c) is not met.

Power to amend definitions

371II

The HMRC Commissioners may by regulations amend this Chapter—

(a) so as to amend the definition of “qualifying resources” for the purposes of section 371IB, or

(b) so as to amend the definition of “qualifying loan relationship” or “ultimate debtor” for the purposes of this Chapter.

Claims

371IJ

(1) A claim under this Chapter must be made by being included in company C's company tax return for the relevant corporation tax accounting period (as defined in section 371BC(3)).

(2) The claim may be included in the return originally made or by amendment.

(3) The claim may be amended or withdrawn by company C only by amending the return.

(4) A claim under this Chapter may be made, amended or withdrawn at any time up to whichever is the last of the following dates—

(a) the first anniversary of the filing date for company C's company tax return for the relevant corporation tax accounting period under paragraph 14 of Schedule 18 to FA 1998;

(b) if notice of enquiry is given into that return under paragraph 24 of that Schedule, 30 days after the enquiry is completed so far as relating to the matters to which the claim relates;

(c) if after such an enquiry an officer of Revenue and Customs amends the return under paragraph 34(2) of that Schedule, 30 days after notice of the amendment is issued;

(d) if an appeal is brought against such an amendment, 30 days after the date on which the appeal is finally determined.

(5) A claim under this Chapter may be made, amended or withdrawn at a later time if an officer of Revenue and Customs allows it.

(6) In any event, if after a claim under this Chapter is made there is a change of circumstances affecting the tested income amount or the aggregate net tax-interest expense that is mentioned in section 371IE, the claim may be amended at any time within the period of 12 months after the change of circumstances for the purpose of taking account of the change of circumstances.

(7) The time limits otherwise applicable to amendment of a company tax return do not apply to an amendment to the extent that it makes, amends or withdraws a claim under this Chapter within the time allowed by or under this section.

(8) In subsection (4) references to an enquiry into a company tax return do not include an enquiry restricted to a previous amendment making, amending or withdrawing a claim under this Chapter.

(9) An enquiry is so restricted if—

(a) the scope of the enquiry is limited as mentioned in paragraph 25(2) of Schedule 18 to FA 1998, and

(b) the amendment giving rise to the enquiry consisted of the making, amending or withdrawing of a claim under this Chapter.

Chapter 10 — The exempt period exemption

Introduction to Chapter

371JA

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

(2) Section 371JE also provides for adjustments of profits which would otherwise pass through the CFC charge gateway (see section 371BB(2)(b)) linked to the exempt period exemption.

The basic rule

371JB

(1) The exempt period exemption applies for a CFC's accounting period if—

(a) the accounting period ends during an exempt period of the CFC (see sections 371JC and 371JD),

(b) the subsequent period condition is met, and

(2) The subsequent period condition is met if—

(a) the CFC does not cease to be a CFC before having at least one accounting period which begins after the end of the exempt period, and

(b) section 371BC (charging the CFC charge) does not apply in relation to the CFC's first accounting period to begin after the end of the exempt period (see section 371BA(2)).

(3) The chargeable company condition is met if, at all times during the relevant period—

(a) the charging condition in section 371JC is met, and

(b) each company which would be a chargeable company for the purposes of that condition is an original chargeable company or is connected with an original chargeable company.

(4) In subsection (3)—

“original chargeable company” means a company which, for the purposes of the charging condition in section 371JC, would be a chargeable company at the beginning of the exempt period, and

“the relevant period” means the period which—begins immediately after the beginning of the exempt period, andends at the end of the CFC's first accounting period to begin after the end of the exempt period.

(5) This section is subject to section 371JF (anti-avoidance).

When does an exempt period begin?

371JC

(1) An exempt period of a CFC begins at any time (“the relevant time”) during an accounting period of the CFC if—

(a) the initial condition is met,

(b) the charging condition is met at the relevant time, and

(2) The initial condition is met if—

(a) immediately before the relevant time, the company (“C”) which is the CFC is carrying on a business, or

(b) if the relevant time is the time at which C is incorporated or formed, C is incorporated or formed by one or more persons for the purpose of controlling one or more companies in circumstances where it is expected that an exempt period will begin in relation to one or more of those companies when C begins to control the company or companies.

(3) To determine if the charging condition is met at any time, assume—

(a) that the company which is the CFC is a CFC at the time in question if that is not otherwise the case,

(b) that the time in question is itself an accounting period of the CFC, and

(4) The charging condition is met at the time in question if, as a result of steps 1, 3 and 4 in section 371BC(1), there would be one or more chargeable companies in relation to the assumed accounting period.

(5) “The relevant preceding period” means the period of 12 months ending immediately before the relevant time, excluding any part of that period during which the company which is the CFC does not exist.

How long is an exempt period?

371JD

(1) Subject to what follows, an exempt period of a CFC lasts 12 months.

(2) Subsection (3) applies if a notice is given to an officer of Revenue and Customs requesting that the length of an exempt period of a CFC be extended (or further extended).

(3) An officer of Revenue and Customs may extend (or further extend) the length of the exempt period.

(4) A notice under subsection (2) must be given no later than the end of the exempt period (as it stands at the time the notice is given).

(5) A notice under subsection (2) may be given only by a company which, at the time the notice is given, would be a chargeable company for the purposes of the charging condition in section 371JC.

Adjustment of profits passing through the CFC charge gateway

371JE

(1) This section applies for a CFC's accounting period if—

(a) the accounting period begins, but does not end, during an exempt period of the CFC, and

(b) the subsequent period condition and the chargeable company condition in section 371JB are both met.

(2) The CFC's assumed total profits which would otherwise pass through the CFC charge gateway are to be adjusted to ensure that no profits which arise in the exempt period, as determined on a just and reasonable basis, pass through the CFC charge gateway.

(3) This section is subject to section 371JF (anti-avoidance).

Anti-avoidance

371JF

(1) The exempt period exemption does not apply for a CFC's accounting period (“the relevant accounting period”) if condition A or B is met.

(2) Condition A is that—

(a) an arrangement is entered into at any time,

(b) the main purpose, or one of the main purposes, of the arrangement is to secure a tax advantage for any person,

(c) the arrangement is linked to the exempt period exemption applying or being expected to apply (apart from this section)—

(i) for the relevant accounting period, or

(ii) for that period and one or more other accounting periods of the CFC, and

(d) the arrangement involves one or both of the following—

(i) the CFC holding assets which give rise to non-trading finance profits or trading finance profits of the CFC, or

(ii) the CFC holding intellectual property which gives rise to any income of the CFC.

(3) Condition B is that—

(a) an arrangement is entered into at any time,

(b) in consequence of the arrangement, the length of any accounting period of the CFC is less than 12 months, and

(c) the main purpose, or one of the main purposes, of the arrangement is to secure that the exempt period exemption applies—

(i) for the relevant accounting period, or

(ii) for that period and one or more other accounting periods of the CFC.

(4) In this section references to the exempt period exemption include references to section 371JE.

Amendment of company tax returns

371JG

(1) This section applies in relation to a company's company tax return for a corporation tax accounting period if an exempt period of a CFC falls (wholly or partly) in the corporation tax accounting period.

(2) Any amendment of the return which relates to the application (or non-application) of the exempt period exemption or section 371JE for an accounting period of the CFC may be made by the company at any time no later than 12 months after the relevant filing date.

(3) “The relevant filing date” means the date which is the filing date under paragraph 14 of Schedule 18 to FA 1998 for the company's company tax return for its corporation tax accounting period in which ends the CFC's first accounting period to begin after the end of the exempt period.

(4) “Corporation tax accounting period” means an accounting period for corporation tax purposes.

Chapter 11 — The excluded territories exemption

Introduction to Chapter

371KA

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

The basic rule

371KB

(1) The excluded territories exemption applies for a CFC's accounting period if—

(a) the CFC is resident (see section 371KC) in an excluded territory for the accounting period,

(b) the total of the following amounts is no more than the threshold amount for the accounting period (see section 371KD)—

(i) the CFC's category A income (if any) for the accounting period (see sections 371KE and 371KF),

(ii) the CFC's category B income (if any) for the accounting period (see section 371KG),

(iii) the CFC's category C income (if any) for the accounting period (see section 371KH), and

(iv) the CFC's category D income (if any) for the accounting period (see section 371KI),

(d) the CFC is not, at any time during the accounting period, involved in an arrangement the main purpose, or one of the main purposes, of which is to obtain a tax advantage for any person.

(2) In this Chapter “excluded territory” means a territory specified as such in regulations made by the HMRC Commissioners.

(3) The HMRC Commissioners may also by regulations, in relation to CFCs resident in a specified excluded territory or to other specified cases, do one or more of the following—

(a) provide that one or both of the requirements set out in subsection (1)(b) and (c) does not have to be met in order for the excluded territories exemption to apply;

(b) modify one or both of those requirements, including by modifying any provision of this Chapter mentioned in subsection (1)(b) or (c);

(4) If an amount is included in more than one of the categories of income mentioned in subsection (1)(b)(i) to (iv), the amount is to be counted only once in determining if the threshold amount is exceeded.

How to determine the territory in which a CFC is resident

371KC

(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.

What is “the threshold amount”?

371KD

(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).

Category A income: the basic rule

371KE

(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

(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.

Category A income: permanent establishments in excluded territories

371KF

(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.

Category B income

371KG

(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.

Category C income

371KH

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).

Category D income

371KI

(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.

The IP condition

371KJ

(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.

Chapter 12 — The low profits exemption

Introduction to Chapter

371LA

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

The basic rule

371LB

(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.

Anti-avoidance

371LC

(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).

Chapter 13 — The low profit margin exemption

Introduction to Chapter

371MA

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

The basic rule

371MB

(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.

Anti-avoidance

371MC

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.

Chapter 14 — The tax exemption

Introduction to Chapter

371NA

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

The basic rule

371NB

(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.

Reductions to “the local tax amount”

371NC

(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.

What are “designer rate tax provisions”?

371ND

(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.

How to determine “the corresponding UK tax”

371NE

(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.

Chapter 15 — Relevant interests in a CFC

Introduction

Application of Chapter

371OA

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).

Provision about interpretation

371OB

(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,

(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.

What is a “relevant interest” in a CFC?

“Relevant interests” of UK resident companies

371OC

(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

(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.

Other “relevant interests”

371OE

(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.

Chapter 16 — Creditable tax of a CFC

What is “creditable tax”?

371PA

(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.

Chapter 17 — Apportionment of a CFC's chargeable profits and creditable tax

Introduction

Application of Chapter

371QA

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).

Provision about interpretation

371QB

(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.

How are the apportionments to be made?

The basic rules

371QC

(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.

Apportionments to be made in proportion to shareholding

371QD

(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.

Indirect shareholdings

371QE

(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$where—P is the product of the appropriate fractions of R and each of the share-linked companies through which R indirectly holds the relevant shares, other than the share-linked company which directly holds the relevant shares, andS is the percentage of the issued ordinary shares in the CFC which the relevant shares represent.$

(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).

Variable shareholdings

371QF

(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$where—P is the percentage of the issued ordinary shares in the CFC represented by the relevant person's relevant interest during the holding period,H is the number of days in the holding period, andA is the number of days in the accounting period.$

Anti-avoidance

371QG

(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).

Chapter 18 — Control etc

Overview of Chapter

371RA

(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.

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