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HMRC internal manual

International Manual

Controlled Foreign Companies: Control: Control determined by accounting standards


Control can also be determined by a test based on accounting principles. In broad terms, if the results of a non-UK resident company are consolidated in the accounts of a UK company then the non-UK resident company is a CFC. However the accounting test is limited to cases where the non-UK resident company would have at least 50% of its profits apportioned as chargeable profits to a UK resident person.

The accounting test is based on Financial Reporting Standard 102 (“FRS 102”) as issued and updated by the Accounting Standards Board in the UK. A person “P” controls a company at any time if P is the company’s “parent”. FRS 102 sets out the circumstances in which a parent must prepare consolidated financial statements including the financial results of any “subsidiary”. It does not matter if P does not or is not required to prepare consolidated financial statements under FRS102; the test simply applies where there would be a parent/subsidiary relationship if P were to apply FRS 102. So although for example a small or medium sized group is exempt from preparing consolidated financial statements, the test is applied on the basis of whether there would parent/subsidiary relationship if FRS102 were applied, and so the accounting test applies to such groups.

The terms “parent” and subsidiary” take their meaning from FRS 102. Even if a parent/subsidiary relationship exists under FRS102, a subsidiary will not be taken as a CFC at the time in question unless the “50% condition” is met at that time.

Assumptions must be made when determining whether the “50% condition” is met at any particular time. These are:

  • that the company is a CFC at that time;
  • that that time is itself an accounting period of a CFC; and
  • that section 371BC (charging the CFC charge - see INTM194100) applies in relation to the assumed accounting period.

These assumptions establish an assumed CFC, an assumed accounting period and assume that the CFC’s chargeable profits would be apportioned for that assumed accounting period for any single point in time for the purpose of establishing whether the 50% condition is met at that time. The 50% condition is then met if at the time in question the percentage of the CFC’s chargeable profits (as calculated using the assumptions above) which would be apportioned to P taken together with its UK resident subsidiary undertakings (if it has any) would be at least 50%.


Consider a non-UK resident company A with a 12-month accounting period ended 31 December 2015. Up until 31 March 2015 it was wholly owned by non-UK group B, when it was acquired by unconnected UK group C. The assets and liabilities of A are included in the consolidated financial statements of B at fair value as at 31 March 2015 and because there is a parent/subsidiary relationship between A and C from 1 April 2015 the results of A thereafter are included in the consolidated financial statements of group C. Although A is accounted for as a subsidiary of C, it is only treated as a CFC by virtue of the accounting standard test from 31 March 2015 as this is the point in time when C becomes a CFC (see INTM248150).