This part of GOV.UK is being rebuilt – find out what beta means

HMRC internal manual

International Manual

Controlled Foreign Companies: The CFC Charge Gateway Chapter 4 - Profits attributable to UK activities: Exclusions - Trading profits: Management expenditure condition


The management expenditure condition is intended to measure the extent to which the management of the CFC’s business takes place in the UK. It assesses management activity by reference to expenditure. This approach should be more straightforward than the full SPF approach, and easier to apply, as the condition can be considered by reference to the expenditure shown in the accounts of the CFC.

The condition operates by identifying the total amount of expenditure incurred in relation to management activity (“the total related management expenditure”), and then assessing the extent to which that expenditure was incurred in relation to management activity undertaken in the UK (“the UK related management expenditure”).

The condition is met unless the UK related management expenditure exceeds 20% of total related management expenditure.

The total related management expenditure of the CFC is made up of the following elements:

  • Expenditure in relation to any member of staff who carries out relevant management functions and
  • Expenditure on the engagement (directly or indirectly) of individuals other than members of staff who carry out relevant management functions which arise from an arrangement with the individual and
  • Expenditure on the engagement (directly or indirectly) of any company related to the CFC where the expenditure relates to the employment of staff of that related company, or the engagement of an individual by that related company, where the member of staff or other individual carries out relevant management functions.

The UK related management expenditure is so much of the total related management expenditure so far as it relates to members of staff or other individuals carrying out relevant management functions in the UK.

A person is carrying out a relevant management function if the person manages or controls any assets or risks which give rise to profits for the CFC. Such assets and risks are called “relevant assets and risks” in Step 1 (see INTM200500).

An example of a person carrying out relevant management functions is a person who formulates plans or makes decisions in relation to the acquisition, creation, development or exploitation of assets or the taking on of risks. This definition matches the definition of assets or risks which are “UK managed” in Chapter 3, and which determines whether Chapter 4 applies (see INTM197200).

Where the CFC does not meet the 20% management expenditure condition, if the CFC meets all the other trading profits exclusion conditions, an alternative management expenditure condition applies by reference to each asset or risk held by the CFC. The result is that profits attributable to that asset or risk are covered by the exclusion, but other profits are not.

The separate asset by asset or risk by risk management expenditure condition is met if, in relation to any asset or risk, not more than 50% of the relevant management expenditure in relation to that asset or risk is UK related management expenditure.

This is the only condition for exclusion that does not have to be applied on an entity basis. It can either be applied to each asset or risk, or, if it is not reasonable practical to separate a number of assets or risks, those assets or risks can be considered together in relation to this 50% rule.