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HMRC internal manual

International Manual

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HM Revenue & Customs
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Controlled Foreign Companies: Introduction to the CFC Charge: The CFC Charge Gateway

The CFC charge gateway is only considered if none of the entity level exemptions apply in chapters 10 to 14. In determining if a CFC has chargeable profits, it will be necessary to apply the CFC charge gateway. The CFC charge gateway itself has an initial filter for profits of a CFC in Chapter 3 (see INTM197000). This Chapter sets out conditions that must be met for each of Chapters 4 to 8 to be applied in an accounting period. If the conditions for a particular chapter to apply are not met, then the CFC will have no chargeable profits arising from that chapter.

If the conditions for a particular chapter are met, it is necessary to apply that chapter and determine whether any of the CFC’s assumed total profits fall within that chapter in an accounting period. The extent to which the assumed total profits fall within the chapter determines how much of them pass through the CFC charge gateway.

The steps to determine if a CFC has chargeable profits are set out at TIOPA10/S371BB(1):

a. Step 1 - refers to Chapter 3 to determine which (if any) of Chapters 4 to 8 apply for that period. If none of those Chapters applies there is no need to consider Step 2 as the CFC has no chargeable profits.

b. Step 2- requires Chapters 4 to 8 to be applied so far as required by Step 1 to determine how much (if any) of the CFC’s assumed total profits fall within those Chapters for the accounting period and therefore pass through the CFC charge gateway and are chargeable profits for the purposes of charging the CFC charge.

Chapters 4 to 8 are at INTM200000, INTM203000, INTM207000, INTM210000 and INTM213000 respectively.

Chapter 9 can exempt or partially exempt profits arising from qualifying loan relationships (INTM216000). TIOPA10/S371BB(2) provides that Chapter 9 conditions rather than Chapter 5 will apply in taking Step 2 on the making of a claim by the chargeable company (see INTM194500).

Where the exempt period exemption applies under Chapter 10 (see INTM224100) and the exempt period straddles two accounting periods of the CFC, TIOPA10/S371BB(2)(b) allows the assumed total profits passing through the CFC charge gateway at Step 2 to be adjusted so that none of the profits pass through the CFC charge gateway that arise in the exempt period.