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HMRC internal manual

International Manual

Controlled Foreign Companies: Entity Exemptions: Chapter 11 - The Excluded Territories Exemption: Meaning of accounting profits: Category A - permanent establishment(s) of a CFC

TIOPA10/S371KF applies where a CFC has a permanent establishment in another territory (outside the CFC’s territory) which is itself an excluded territory and the CFC’s relevant income (as defined in TIOPA10/S371KE(2)) includes any Category A income. The effect of the section is to ignore any income that would otherwise fall within Category A under TIOPA10/S371KE if it has been taxed fully under the law of the excluded territory in which the permanent establishment is established. So if the income arising in a German branch of a CFC resident in France is exempt under French law, that income will nevertheless not fall within category A if it is taxed under the law of Germany.