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HMRC internal manual

International Manual

Controlled Foreign Companies: Relevant Interests in a CFC: Relevant Interests of persons related to UK resident companies

The interests of persons related to UK resident companies are prevented from being taken to be relevant interests in a CFC to the extent that such interest may be attributed to a UK resident company. TIOPA10/S371OD identifies instances where a non-UK resident person related to a UK resident company holds an indirect interest through a UK resident company or another related person, or has an interest that is also an indirect interest of a UK resident company, and ensures that these interests are not to be regarded as being relevant interests. The section has the effect of prioritising the interest held by the UK resident company as being the relevant interest.

TIOPA10/S371OD(3) defines related person as a person, other than a UK resident company, who is connected or associated with any of the UK resident companies with an interest in the CFC. Section 371VF defines “connected” and “associated” for this purpose - see INTM248350 for further detail

Example: Interest of a related person through a direct or indirect interest in a UK resident company with a relevant interest (TIOPA2010/371OD(4))

If company A, a non-UK resident company, holds a 100% direct (or equally indirect) interest in company B, a UK resident company, and in turn company B has a 100% interest in company C, a CFC, then both company A and company B will have an interest that would, without section 371OD(4) be a relevant interest. However subsection (4) operates to prevent company A’s interest being treated as a relevant interest because it is held only by virtue of UK resident company B’s interest, which is the relevant interest.

Example: Interest of a related person where a UK resident company has an indirect interest in the CFC by virtue of an interest in the related person (TIOPA10/S 371OD(5))

If company A (a UK resident company) holds a 100% interest in company B (a non-UK resident company) who has a 100% interest in company C (the CFC), subsection (5) will operate to ensure that the interest of company B is not a relevant interest and that, the interest of company A, will be the only relevant interest.