Controlled Foreign Companies: an overview

Rules to stop companies from reducing UK tax by diverting profits to tax shelters and preferential regimes, and the exemptions.

This guidance relates to Controlled Foreign Companies (CFC) with accounting periods beginning on or after 1 January 2013.

Definition of a CFC

A foreign company is a CFC if it’s a non-resident UK company that’s controlled by a UK resident person or persons.

Control is determined by reference to:

  • legal control
  • economic control
  • a joint venture test
  • accounting standards

Application of the rules and exemptions

The CFC rules are anti-avoidance provisions designed to prevent diversion of UK profits to low tax territories. If UK profits are diverted to a CFC, those profits are apportioned and charged on a UK corporate interest-holder that holds at least a 25% interest in the CFC.

The regime operates by applying a series of charge gateways to different types of profits to identify any profits diverted from the UK that will then be apportioned and charged on the relevant UK corporate interest-holders. There are also a number of entity level exemptions to reflect the fact that it’s considered that the majority of CFCs are set up for genuine commercial reasons and to reduce the compliance burden in applying the rules.

Accounting periods beginning before 1 January 2013

The definition and guidance relating to CFCs with accounting periods beginning before 1 January 2013 is available in HM Revenue and Customs (HMRC) International manual.

Who to contact for further advice

If you need further guidance on a particular CFC case, you can write to:

HM Revenue and Customs
CTIS Business International
Controlled Foreign Company Team
100 Parliament Street

But HMRC won’t give you guidance if it’s going to be used to facilitate tax avoidance.

Published 13 April 2013
Last updated 10 November 2014 + show all updates
  1. Updated to reflect legislative changes.
  2. First published.