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HMRC internal manual

International Manual

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HM Revenue & Customs
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Controlled Foreign Companies: The CFC charge gateway chapter 8 - solo consolidation: detailed rules

In order for TIOPA10/Part 9A/Chapter 8 to apply the CFC must meet one of the two conditions set out in section 371CG.

These are that at any time in the accounting period;

Condition A

  1. The CFC is a subsidiary undertaking which is the subject of a solo consolidation waiver under section BIPRU 2.1 of the FSA Handbook; and
  2. The CFC’s parent undertaking in relation to the waiver is a UK resident company;

Or

Condition B

  1. The CFC is controlled (either alone or with other persons) by a UK resident connected person carrying on banking business as defined by TIOPA10/S371VA;
  2. The UK resident bank meets the requirements of the FSA Handbook in relation to its capital;
  3. Any fall in value of the shares held in the CFC would be (wholly or mainly) disregarded for the purposes of determining whether the UK bank meets the FSA handbook requirements; and
  4. The main purpose, or one of the main purposes, of the UK bank in holding shares in the CFC is to obtain a tax advantage for itself or a connected company.

If either of these conditions is met then Chapter 8 applies.

TIOPA10/S371HA(1) sets out the basic rule for identifying the profits that fall within Chapter 8 and that are included in the CFC charge gateway. Subsection 1 requires you to compare the CFC’s assumed total profits (as defined by TIOPA10/S371SB(9) see INTM239200) for the accounting period with the CFC’s relevant profits amount for the accounting period. The effect of the rule is to bring into charge amounts that are included in the CFC’s assumed total profits but that are not included in its relevant profits amount i.e. the profits that would be attributed to the CFC if it were a foreign PE of the UK bank.

TIOPA10/S371HA(2) defines the CFC’s relevant profit amount by reference to CTA09/S18A(6) which contains the rule for determining the profits that should be attributed to a PE for the purposes of the branch exemption rules in CTA09/Part 2. In doing so it deems the CFC to be a permanent establishment of the UK resident company mentioned in TIOPA10/S371CG(2) or the UK resident bank mentioned in TIOPA10/S371CG(3) and deems the CFC’s accounting period to be a relevant accounting period for that UK resident company or bank.