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HMRC internal manual

International Manual

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HM Revenue & Customs
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Controlled Foreign Companies: Assumed Taxable Total Profits, Assumed Total Profits and the Corporation Tax Assumptions: Corporation Tax Assumptions

The corporation tax assumptions are the assumptions that are set out in TIOPA10/Part9A/S371SD to 371SR. Broadly speaking, the CFC’s profits are calculated on the assumption that the CFC is UK resident in the accounting period. Certain additional assumptions provide continuity of treatment for reliefs and restrict opportunities for avoidance.

Brief overview of sections:

  • TIOPA10/S371SD provides that the CFC is assumed to be UK resident from the beginning of the CFC’s first accounting period (i.e. the CFC’s accounting period which begins when it becomes a CFC) and that it is assumed to be within the charge to corporation tax.
  • TIOPA10/S371SE assumes that the CFC is not a close company.
  • TIOPA10/S371SF, subject to some exclusions, provides that the CFC is assumed to have made any claims or elections that would have been available under the Corporation Tax Acts for the maximum amount under the law and within any applicable time limit. In some circumstances this assumption can be disapplied or varied under TIOPA10/S371SG following the receipt of a notice to an Officer of HMRC requesting this.
  • TIOPA10/S371SH applies if a notice is given to an Officer of Revenue and Customs in the correct form and within the required time limit requesting that the CFC be assumed to have made an election under CTA10/S9A (designated currency of a UK resident investment company). TIOPA10/ S371SI applies certain modifications to CTA10/S6 and 7 to ensure that the election provisions can apply to the CFC.
  • TIOPA10/S371SJ applies if a notice is given to an Officer of Revenue and Customs in the correct form and within the required time limit requesting that the CFC be assumed to have made a long funding lease election.
  • TIOPA10/S371SK applies CTA09/Part 8 (intangible fixed assets) rules to the CFC and requires an assumption that any intangible fixed asset satisfying the relevant criteria of Part 8 acquired or created by the CFC before its first accounting period was acquired or created at the beginning of the accounting period at a cost equivalent to its accounting value at that time.
  • TIOPA10/S371SL assumes that the CFC is not a member of a group or a consortium for the purposes of any provision of the Tax Acts.
  • TIOPA10/S371SM assumes that any capital expenditure on plant and machinery used for the purposes of its trade incurred prior to the CFC’s first accounting period was provided for non-trade purposes and was not brought into use for trade purposes until the beginning of the CFC’s first accounting period.
  • TIOPA10/S371SN applies for the purposes of CTA2009/Part 18 (unremittable overseas income) and ensures that relief is only available to a CFC in the computation of its assumed total profits if it is not possible to remit the income to either the UK or to the CFC’s territory of residence.
  • TIOPA10/S371SO applies if there is an arrangement or other conduct the purpose of which is to obtain a tax advantage under CTA10/S1139. In these circumstances the anti-avoidance provisions within the Corporation Tax Acts are assumed to apply to the CFC in the same way that they would to a UK resident company.
  • TIOPA10/S371SP applies if the CFC is party to an arrangement and a main purpose of entering into that arrangement is to obtain a tax advantage that the disguised interest rules at CTA09/Part 6/Ch2A would apply to.
  • TIOPA10/S371SQ applies if the CFC has entered into an arrangement and a main purpose of entering into that arrangement is to obtain a tax advantage that the shares accounted for as liabilities rules at CTA09/S521C would apply to.
  • TIOPA10/S371SR applies to assume a counteraction notice has been issued in order to allow the rules of TIOPA10/S82 relating to double taxation relief anti-avoidance provisions to apply.