Beta This part of GOV.UK is being rebuilt – find out what beta means

HMRC internal manual

International Manual

Controlled Foreign Companies: Introduction to the CFC rules: Overview


The CFC regime applies to companies resident outside the UK that are controlled by UK residents. It also applies by extension to exempt foreign branches of UK resident companies.


The CFC rules contain a definition of what is meant by UK control, which can be established by -

  • Legal control - a test that uses shareholdings and other legal documents to determine whether UK persons control the CFC.
  • Economic control - a test that looks to establish whether “economically” the CFC is controlled by UK persons. Even if persons do not own enough of the shares in the CFC to meet the legal control test, they would still be expected to retain the economic benefit of the CFC’s activity through rights to profits, rights to assets in the event of a winding up and rights to the proceeds on the disposal of the CFC.
  • Accounting control - a test using an accounting definition of a parent undertaking to determine whether the CFC is a subsidiary.

The CFC rules also apply to a joint venture CFC where two or more persons control the CFC, one of those persons is a UK resident company that controls at least 40%, and one of the other persons is a non-UK resident and controls between 40% and 55% of the CFC. More details on determining control for the purposes of the CFC rules can be found at INTM236000.

CFC charge

Chapter 2 of Part 9A TIOPA 2010 sets out the steps for determining if a CFC charge arises once it is established that a foreign company is a CFC. There is a CFC charge if (and only if):

  • The CFC has ‘chargeable profits’;
  • None of the CFC exemptions apply; and
  • There is a UK ‘interest holder’ that is not exempt and that (together with connected companies) holds an interest of at least 25%.

These conditions may be applied in any order, so that (for example) if one of the CFC exemptions applies to a CFC it is not necessary to consider whether or not it has any chargeable profits.

If a CFC charge arises, it is charged on each ‘chargeable company’ holding a relevant interest.

In practice groups will easily be able to establish that almost all of their foreign subsidiaries will be outside the scope of the new CFC regime or exempt from it. Business profits arising in a foreign subsidiary are only be subject to the regime if they are derived from UK activities that relate to the assets or risks of the foreign subsidiary.

Illustrative flowchart

In this and other flowcharts in this guidance, the convention is that, where a question is posed, the answer ‘yes’ leads down the page and towards a CFC charge. The box with dashed lines indicates that the two boxes beneath it need to be considered only if all of the questions posed within it are answered yes, but the questions can be considered in any order.

Use this link to view the illustrative flowchart


Chargeable profits

The CFC charge applies only in respect of a CFC’s chargeable profits. A CFC’s chargeable profits are the part of its profits that pass through the ‘CFC charge gateway’. The gateway is set out in Chapters 3 to 9 of Part 9A TIOPA2010 (Chapter 9 working in conjunction with Chapter 5) - it is a series of definitions of profits that may fall within the CFC regime. The different chapters deal with different types of profit. Profits that pass through the CFC charge gateway are profits that have been artificially diverted from the UK.

This means that a CFC charge can arise only to the extent that these chapters positively identify profits as chargeable profits.

The CFC charge gateway

The CFC charge gateway begins by providing a number of tests by which companies can check whether any of the chapters that define the amounts of chargeable profits apply. These tests are contained in Chapter 3 (see INTM197000) whose purpose is to provide a simple and accessible means for companies to identify companies for which there can be no CFC charge because there are no chargeable profits.

For most CFCs, there will be no need to consider the CFC legislation beyond Chapter 3. Where appropriate HMRC will give CFC clearances by reference to Chapter 3, only considering the later gateway chapters where the Chapter 3 rules make it necessary to do so.

Where in relation to a CFC it is necessary to consider the more detailed gateway rules in one or more of Chapters 4 to 8, only those profits (if any) which pass through the gateway may be included within its ‘assumed total profits.’ These are what would be its profits if it were a stand alone UK tax resident company (i.e. not a member of a UK group) but before deduction of amounts that are relieved against a company’s total profits - mainly management expenses (amounts relieved under Step 2 of S4/CTA10).

Deductions against total profits

If the CFC has an amount of assumed total profits, the next step is to determine its ‘assumed taxable total profits ‘. In determining those profits, relief may be given by way of a deduction from the assumed total profits to the extent that it is just and reasonable to do so. Unless there is some reason to use a different figure, the relief will correspond to the proportion that those of the CFC’s assumed total profits that pass through the gateway are of all its assumed total profits. For example, if a quarter of the CFC’s assumed total profits would pass through the CFC charge gateway, only a quarter of the amounts which would otherwise be relievable against the assumed total profits are to be deducted in arriving at the CFC’s assumed taxable total profits (and thus its chargeable profits).

Management expenses are the most common type of deduction against total profits. Note that most types of loss relief available to a CFC are set against a particular category of profits rather than being set against total profits - in particular, losses arising from a trade carried on wholly outside the UK may not be set against total profits.

In practice, it will probably be necessary to determine chargeable profits before it is possible to determine the proportion of deductions available against total profits that it is just and reasonable to deduct from the chargeable profits.