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HMRC internal manual

International Manual

HM Revenue & Customs
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Controlled Foreign Companies: Control: Cell companies or similar entities and control

A number of groups use protected cell companies or similar entities for some of their business activities, typically captive insurance. Such entities are commonly offered in the Crown Dependencies of Jersey, Guernsey and the Isle of Man. Part 9A and in particular the control rules apply in relation to either unincorporated cells of protected cell companies or incorporated cells of incorporated cell companies as if the individual cells of either type of company are non-UK resident companies.

A protected cell company (PCC) can be thought of as being a standard limited company that has been separated into legally distinct portions i.e. cells. The income, assets and liabilities of each cell are kept separate from all other cells. Each cell has its own separate portion of the PCC’s overall share capital, allowing shareholders to maintain sole ownership of an entire cell while owning only a small proportion of the PCC as a whole. Legally a PCC is a single company, but each shareholder/investor retains a separate interest in the company. Similar structures to the PCC include the incorporated cell company (ICC) where each cell is treated as a separate incorporated entity to provide greater protection still for the individual shareholder’s assets and income.

Such arrangements are often used in relation to captive insurance, where a number of independent entities can each own a separate cell within the PCC or ICC, ensuring that their own assets are ring-fenced within the structure.

Such arrangements can be used to sidestep the CFC rules (including those on control) by allowing UK resident unconnected parties to run their insurance or investment activities alongside each other within the structure whilst only holding a minority of the total shares in the PCC/ICC and only being entitled to a small proportion of the total profits. The intention and effect is quite different to holding a small passive investment in a third party entity. These structures are replicating the effect of each shareholder controlling their own separate entity. Accordingly for the purposes of Part 9A and in particular the control rules each individual cell is be taken to be a non-UK resident company in its own right.

Incorporated and unincorporated cells are defined by TIOPA10/S371VE. An unincorporated cell is defined as any identifiable part (by whatever name described) of a non-UK resident company that meets the necessary condition. The condition is that, under the law under which the non-UK resident company is incorporated or formed, the articles of association or other document regulating the non-UK resident company, or the terms of any arrangement entered into by or in relation to the non-UK resident company:

  • assets and liabilities of the non-UK resident company may be wholly or mainly allocated to the unincorporated cell such that;
  • the cell’s liabilities are met wholly or mainly out of its assets; and 
  • there are members of the non-UK resident company whose rights are wholly or mainly limited to the cell’s assets.

An “incorporated cell” is defined as an entity (by whatever name described) which is established under the articles of association or other document regulating the non-UK resident company, where the incorporated cell, under the law of the territory in which the non-UK resident company was formed, has an incorporated legal personality distinct to that of the company but is not itself already a company.

So in determining whether an individual cell should be taken to be a CFC for the purposes of Part 9A, the control rules will be applied to an individual cell as if it were a non-UK resident company in order to determine whether it is controlled by a UK person or persons under the legal and economic control tests (See INTM236225 and INTM236250 or if the 40% rule applies under see INTM236275.

However this does not affect the status of the host entity, either the PCC or ICC (or similar entities) irrespective of whether there are separate cells within those entities treated as CFCs. Regardless of the treatment of the individual cells within the companies, the PCC or ICC will also be treated as a non-UK resident company for the purposes of Part 9A. This means that the control rules will also apply to the company as a whole in determining whether it is controlled by a UK person or UK persons. In the case of a PCC or similar entity, where cells are unincorporated, assets and liabilities are to be apportioned between the cells and the company on a just and reasonable basis. In the case of an incorporated cell company the incorporated nature of the cells means that this further apportionment provision is not needed.


Company X is established by UK resident company Y in an overseas territory. X provides captive insurance facilities to unconnected UK resident companies A to J through ten unincorporated cells. X itself has “core” shares and “cell” shares. The core shares have voting rights and the right to appoint directors; the shares are wholly owned by Y. The cell shares are separate shares issued for each cell and are wholly owned by the unconnected UK resident companies A to J (so that A owns all the cell shares in the first cell, B owns all the shares in the second cell and so on).

Each cell prepares its own accounts, and the assets of each cell are protected from the others. So if one cell makes a loss, it has no impact on the other cells. If a cell were to become insolvent, the creditors have no recourse to the assets held in other cells. However the cells cannot contract in their own name; contracts of insurance are entered into by X but the risks and benefits of the contract are specified to particular cells.

X provides management and underwriting services for each of the ten cells and makes profits that are not included in any of the accounts prepared for the individual cells.

Each separate cell is subject to a test of control and each cell is deemed to be a CFC of each of A to J respectively because of the legal control each has over their cell. The profits potentially subject to a CFC charge are the profits derived from the contracts of insurance (underwriting profits and investment profits).

X is clearly controlled by Y given it owns all of the shares in X (i.e. has legal control) and so is a CFC. The profits potentially subject to a CFC charge are the profits derived from the management and underwriting services.