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HMRC internal manual

International Manual

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

Does Chapter 8 apply? (TIOPA10/S371CG)

Solo consolidation is an arrangement whereby the Prudential Regulation Authority (PRA) allows a regulated financial company to treat an unregulated subsidiary for regulatory purposes as if it were a division of the regulated company. A company that wishes to solo consolidate must apply to the PRA for a waiver.

Chapter 8 (solo consolidation) only applies for a CFC’s accounting period if either of two conditions is met.

The first condition is that at any time in the accounting period the CFC is a subsidiary undertaking which is the subject of a solo consolidation waiver, and the CFC’s parent undertaking, in relation to that waiver, is a UK resident company.

The second condition does not require a solo consolidation waiver to be held. Instead, if at any time in the accounting period the CFC is controlled by a UK resident bank (alone or with other persons) which holds shares in the CFC, the UK resident bank meets the requirements of the PRA Handbook in relation to its capital, and any fall in the value of those shares held in the CFC would be (wholly or mainly) ignored for the purpose of determining whether the UK resident bank meets the requirements of the PRA Handbook in relation to its capital, the condition is met. The application of this condition however is limited to circumstances where the main purpose, or one of the main purposes of the UK resident bank in holding the shares is to obtain a tax advantage for itself or any connected company.

The terms “PRA Handbook” and “UK resident bank” used in the section are defined in TIOPA10/S371CG(4).

If either condition is met see INTM213000 for further guidance on how to calculate the chargeable profit under Chapter 8.