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HMRC internal manual

International Manual

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HM Revenue & Customs
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Controlled Foreign Companies: Relevant Interests in a CFC: Introduction

A CFC has chargeable profits if it has profits that have passed through the CFC charge gateway for an accounting period and none of the entity exemptions apply (for details of the exemptions see INTM224000). The CFC’s chargeable profits are apportioned amongst the relevant persons at step 3 of TIOPA10/S371BC for the purposes of charging the CFC charge on companies that meet the UK residence condition (step 4 of TIOPA10/S371BC).

The purpose of the relevant interest rules is to ascertain who, if anyone, the CFC’s chargeable profits could potentially be apportioned to i.e. “a relevant person” for the purposes of step 1 of TIOPA10/S371BC. For further details of the steps to be taken for charging the CFC charge see INTM194400.

A relevant person is a person who holds a relevant interest in the CFC at any time during the accounting period.

In order to hold a relevant interest, a person must have an interest (as defined in TIOPA10/S371VH) in the CFC. Not everyone however with an interest in a CFC will have a relevant interest for the purposes of charging the CFC charge. Nor will every relevant person who holds a relevant interest be subject to the CFC charge. Only those who are a UK resident company holding a relevant interest will be subject to the CFC charge. For example, if two UK resident companies have an interest in a CFC because one holds the shares directly and the other holds the shares in the CFC indirectly through their interest in the first UK resident company, the UK resident company with the direct interest will take priority and be subject of the CFC charge. The UK resident company with the indirect interest will not have a relevant interest and so not be subject of the CFC charge. The relevant interest rules have the effect of tracing back, where possible, interests to a UK resident company (or companies) and, where there is more than one UK resident company holding an interest in a CFC through having an interest in another UK resident company, identifying the lowest or “water’s edge” UK resident company as the company with a relevant interest for the purposes of charging the CFC charge.