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HMRC internal manual

International Manual

Controlled Foreign Companies: The CFC Charge Gateway Chapter 4 - Profits attributable to UK activities: Exclusions - Trading profits: Anti-Avoidance

TIOPA10/S371DL

The anti-avoidance provision protects against manipulation of the conditions for exclusion. It applies to all conditions and also, in cases where the alternative 50% management expenditure condition has been met, in relation to any asset or risk.

This provision applies if a condition for exclusion has been met but it is reasonable to suppose that it would not have been met absent a particular arrangement. In these circumstances the condition is to be taken as not having been met.

Arrangements fall within this provision if they involve the organisation or reorganisation of a significant part of the CFC’s business in a particular way, but only if one of the main purposes of that organisation or reorganisation was to secure that one or more of the conditions for exclusion was met.

In other words, the anti-avoidance condition only bites if the CFC has been party to an arrangement where:

  • A significant part of the CFC’s business has been organised or reorganised and
  • the main purpose, or one of the main purposes of that (re)organisation is to ensure that one or more of the trading income conditions for exclusion are met.

The anti-avoidance provision will not apply in circumstances where arrangements are limited to monitoring the limits applicable to the conditions for exclusion. For example, an arrangement to monitor the level of UK income would not be caught. Such an arrangement would not require the organisation or reorganisation of a significant part of the CFC’s business. Further, the main purpose of such arrangements would be to monitor whether the UK income condition had been met, rather than to ensure to it was met.