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HMRC internal manual

International Manual

Controlled Foreign Companies: The CFC Charge Gateway Chapter 3 - Determining which (if any) of Chapters 4 to 8 apply: Introduction

Chapter 3 sets out how to determine which, if any, of the remaining CFC Charge Gateway Chapters (from 4 to 8) apply.

Chapter 3 therefore represents an initial filter for the charge gateway. Its purpose is to exclude CFCs that have no chargeable profits from the regime in a relatively simple way in order to keep the cost of administration of the CFC regime as low as possible.

If the conditions for a particular chapter to apply are not met, then the CFC will have no chargeable profits arising from that chapter. Therefore, the detailed rules within the relevant Chapter will not need to be considered further.

The different chapters cover different categories of profit, as follows:

INTM197200 Chapter 4 deals with any profit other than non-trading finance profit and profit arising from a property business.
INTM197600 Chapter 5 deals with non-trading finance profits.
INTM198000 Chapter 6 deals with trading finance profits.
INTM198300 Chapter 7 deals with captive insurance companies.
INTM198400 Chapter 8 deals with certain subsidiaries of regulated financial companies.

The conditions for each chapter are intended to be straightforward to self assess in most cases. We expect a risk based approach to apply to self-assessment under Chapter 3 - there are no special requirements for documentation. Where Chapter 3 indicates that Chapters 4 to 8 do not apply, we would not expect the company to consider those Chapters at all in making its self-assessment.


HMRC does not want businesses to suffer disproportionate compliance costs in order to comply with the CFC regime. Companies should prepare and retain such documentation as is reasonable given the nature, size and complexity (or otherwise) of the CFC’s business or of the relevant assets / risks and the arrangements under which they are held or borne.

As with evidence to demonstrate an “arm’s length” result for transfer pricing rules, any such documentation would need to be made available to HMRC in response to a legitimate and reasonable request in relation to a tax return that had been made.

INTM483030 provides guidance on the content and form of the records that a business is expected to be able to make available to HMRC in order to demonstrate that transfer pricing rules have been applied appropriately. Similar principles apply in relation to a company’s consideration of whether any of a CFC’s profits pass through the CFC charge gateway and the quantification of any such profits.