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HMRC internal manual

International Manual

HM Revenue & Customs
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Controlled Foreign Companies: The CFC Charge Gateway Chapter 4 - Profits attributable to UK activities: Exclusions - Trading profits: contents


The calculation of the Chapter 4 profit at Step 8 excludes amounts from the provisional Chapter 4 profits as determined by Step 7 where one of three exclusions applies (see INTM200500). The third of these excludes trading profits wholly from the Chapter 4 charge if all of a number of conditions are met.

These conditions allow groups to consider a series of mechanical tests as an alternative to the Significant People Function (SPF) approach taken by the first part of Chapter 4. If a CFC meets all of the necessary conditions, then all of its trading profits will be excluded from the provisional Chapter 4 profits. They will be exempt from a CFC charge and no further consideration of assets, risks and SPFs is required.

The conditions for exclusion generally operate on an entity basis, so that a CFC as a whole will either meet or fail them in relation to its trading profits in any particular accounting period.

However, the management expenditure condition, can also be considered on an asset by asset or risk by risk basis. This is dealt with in more detail at INTM200830.

Trading profits basic rule

There are five conditions that all need to be satisfied in order for the exclusion to apply. Those conditions are outlined in the links below.

If all of the conditions are met in an accounting period, all the trading profits of the CFC in that period are excluded from a Chapter 4 charge.

The conditions for exclusion are subject to an anti-avoidance rule. (See INTM200860)