HMRC internal manual

International Manual

INTM194650 - Controlled Foreign Companies: Introduction to the CFC Charge: Particular Entities: Companies which are managers of offshore funds

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A company undertaking the management of offshore funds (or connected to a person undertaking that management), holding a relevant interest in a CFC in an accounting period by virtue of an investment made only or mainly to attract potential third party participants to a fund is, subject to meeting various conditions, not a chargeable company for the purposes of step 4 in TIOPA10/S371BC(1) (see INTM194400).

To qualify for exclusion the company must meet the following conditions set out at TIOPA10/S371BE:

(a) The CFC is an offshore fund (as defined in Section 355 TIOPA 2010)

(b) The genuine diversity of ownership condition set out in regulation 75 of the Offshore Funds (Tax) Regulations 2009 (S.I. 2009/3001) is met in relation to the fund. (The condition is modified for section 371BE purposes so that any reference to period of account is to be read as the relevant accounting period of the CFC),

(c) The fund management condition is met, and

(d) If the company were to be treated as a chargeable company, a sum of no more than £500,000 would be charged on the company at step 5 of TIOPA10/S371BC(1) (see INTM194400).

The Fund Management Condition

The fund management condition at c) above is essentially a purpose test. In order to meet the condition, the assets of the offshore fund must be managed by the company with the relevant interest or a person connected (see INTM248350) with that company throughout the accounting period when the company holds the relevant interest. Secondly, the company or the connected person managing the fund must receive a fee for management of the assets. Finally the company’s relevant interests in the offshore fund must be held only or mainly for the purpose of attracting unconnected participants. The term “participant” is defined in Section 362 TIOPA 2010

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If, in an accounting period, an offshore fund CFC has profits of £1 million of which £350,000 arises from investment capital introduced by the offshore fund manager (or a person connected to that manager) in order to attract third party investment into the fund, the condition will be met as the sum that would be charged on the company holding the relevant interest is less than £500,000. (This amount is reduced proportionately for accounting periods of less than 12 months).