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HMRC internal manual

International Manual

Controlled Foreign Companies: Entity Exemptions: Chapter 11 - The Excluded Territories Exemption: The Basic Rule

TIOPA10/S371KB(1) sets out the four conditions that need to be met for the excluded territories exemption (ETE) to apply for a CFC’s accounting period. These are:

  1. the CFC is resident in one of the specified excluded territories for the accounting period (the residence condition (see INTM224850);
  2. the total of the amounts (if any) of the CFC’s income which falls within Categories A, B, C and D (as set out in TIOPA10/S371KE to S371KI) is no more than the ‘threshold’ amount for the accounting period (as described in TIOPA10/S371KD) (the income condition (see INTM224900);
  3. the intellectual property (IP) condition (provided by TIOPA10/S371KJ) is met (see INTM225000); and 
  4. the CFC is not at any time during the accounting period involved in an arrangement, the main purpose or one of the main purposes of which is to obtain a tax advantage (as defined by CTA10/S1139) for any person (TIOPA10/S371KB(1)(d)) (the anti-avoidance condition (see INTM225050)).

The conditions must all be satisfied by the CFC throughout the relevant accounting period for the ETE to apply.