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HMRC internal manual

International Manual

INTM210600 - Controlled Foreign Companies: The CFC charge gateway chapter 7 - captive insurance business: exempt foreign permanent establishments

TIOPA10/S371GA(4) provides for the exclusion from TIOPA10/S371GA(2)(a)(i), for premiums paid (and the subsequent profits derived from those premiums) by a UK resident company, where:

  • that UK resident company has made an election under CTA09/S18A (a foreign PE’s exemption election), and
  • the premium, or premiums, in question have been wholly brought into account in determining any exemption adjustment in relation to that company under CTA09/S18A (see INTM281010).

The effect of the above, is to exclude from Chapter 7 the premiums paid by UK resident companies that are attributable to the exempt amounts of its foreign PEs. A foreign PE is unlikely to have its own contract of insurance with the captive insurer, but instead the UK company will enter into the contract of insurance. Provided all of the premiums would be attributed (under the calculation for the attribution of profit to a PE) to the exempt amounts of the exempt PEs, then the profits derived from those premiums do not fall within Chapter 7.


A UK company, which has made a foreign PE’s exemption election, insures its foreign PE risks via an insurance contract which requires a premium of £10m. The application of the OECD guidelines on the attribution of profits to PEs attributes that £10m premium between the operations of the UK company (which in this case is none) and each of the foreign PEs as set out in the diagram below.

TIOPA10/S371GA(4) provides that the premiums attributable to PEs 1 to 4, shall be excluded from TIOPA10/S371GA(2)(a)(i) because the premium is wholly brought into account for the purpose of determining the profits of the PEs that are exempt. It doesn’t matter that the premium is effectively attributed to more than one foreign PE; the point is that all the premium is attributable to the exempt amounts of the foreign PEs of the UK company.

Use this link to view example diagram

The basic rule within Chapter 7 identifies profits by reference to contracts of insurance. The exclusion at TIOPA10/S371GA(4) follows the same principle in that it looks at the contract of insurance of the UK company and not parts of an insurance contract that are attributable to each of the foreign PEs. The TIOPA10/S371GA(4) exclusion will therefore only apply to the extent the premium on the contract of insurance is wholly attributable to the exempt amounts of the UK company’s foreign PE or PEs.