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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: Does Chapter 4 apply?: Conditions A to D: Example 1

UK headed group holds intellectual property (IP) in two different companies, one resident in the UK (Company Y) and the other in a zero tax territory (Company Z). Company Y holds patents and related IP for products manufactured and marketed by the group around the world. Company Z holds software which is used by one of the group’s businesses across Latin America and which is also licensed to third parties in Spanish and Portuguese speaking countries.

The group considers whether Chapter 4 will apply to company Z by first considering the conditions at TIOPA10/S371CA. Company Z is staffed adequately to manage its assets and risks and its people have developed a high level of experience and expertise in their field. It is a stand-alone operation and had no UK managed assets and did not bear any UK managed risks at any time during the accounting period. Condition B is met and there is no need to consider the application of Chapter 4 further. Company Z’s profits (assuming it has no non-trading finance profits (see Chapter 5 guidance at INTM203000)) do not pass through the gateway and are outside the scope of the CFC charge.