Controlled Foreign Companies: Entity Exemptions: Chapter 14 - The Tax Exemption: Example 2
This example illustrates the comparison that needs to be made between the local tax amount and the corresponding UK tax. This example shows where a CFC meets the tax exemption.
The facts are as in Example 1 (see INTM226300) except that in addition the CFC pays withholding tax of £5,000 in respect of royalties received from territory Z for which territory X does not give tax relief. The computation of its corresponding UK tax is now as follows assuming the CT rate is:
|£100,000 @ 20%||20,000|
|less tax paid in territory Y||11,000|
|Less withholding tax paid||5,000|
|Tax paid in territory X||3,000||(B)|
As the local tax amount of £3,000 is 75% of the corresponding UK tax then the tax exemption applies and there is no CFC charge.