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HMRC internal manual

International Manual

Controlled Foreign Companies: The CFC Charge Gateway Chapter 4 - Profits attributable to UK activities: Terms used in Chapter 4

Central to the analysis described in INTM200100 is the identification of “key entrepreneurial risk-taking functions” (KERT functions) for businesses in the financial sector or, for other businesses, “significant people functions” relevant to the assumption of risk or to the economic ownership of assets. The use of these different terms in the Organisation for Economic Co-operation and Development’s (OECD) 2010 Report on the Attribution of Profits to Permanent Establishments (“the Report”) recognises that in some businesses there may not always be the same close association between risks and assets as is generally the case in the financial sector.

Outside the financial sector there can be key people functions that do not necessarily involve the assumption or management of risk but are of crucial importance to the economic activities of the business. This may mean that that functions relevant to the economic ownership of assets are separate from functions relevant to the assumption of risks in those sectors. Chapter 4 uses the abbreviated term “SPF” to mean either significant people functions or key entrepreneurial risk-taking function, according to context. All terms used in Chapter 4 that are also used in the Report have the same meaning as they have in the Report.

The CFC group

Chapter 4 also uses the term “the CFC group”, meaning the CFC taken together with the companies with which it is connected as those companies may change from time to time. The meaning of connected is explained in INTM248350.

Concepts borrowed from the Report are applied in the context of a group of companies, generally on the basis that the CFC group is a single company. This allows a comparison to be made within the eight Steps (see INTM200500) between:

  • the profits that the CFC makes on the basis of the actual allocation of assets and risks; and
  • those it would have made following the principles of the Report, in the way set out in the steps.