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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: Claims and Elections - Disapplication of assumption

Example

Claims and Elections - Disapplication of assumption

TIOPA10/S371SG allows a chargeable company to disapply all or part of the claims and election assumptions for an accounting period.

If a notice is given to an officer of HMRC within specified time limits (20 months after the end of the relevant accounting period or such longer period as an officer of HMRC may allow) and in the required form it can be assumed that the CFC:

has not made, for the accounting period, a specified claim or election that would otherwise be assumed by virtue of TIOPA10/S371SF(1) to have been made;

and

has instead made, for the accounting period, a specified claim or election, being different from the one assumed by section 371SF(1) but being one which (subject to compliance with any applicable time limit) could have been made by a company within the charge to corporation tax, or to have disclaimed or required the postponement, in whole or in part, of a specified allowance for the relevant accounting period if (subject to compliance with any applicable time limit) a company within the charge to corporation tax could have disclaimed the allowance or required such a postponement.

As a chargeable company has 20 months after the relevant accounting period (i.e. the accounting period to which the specified claim, election or disclaimer applies) to submit a notice, a return amended as a result of a specified claim, election or disclaimer may be accepted up to 20 months after the end of the accounting period of the CFC.

For the purposes of TIOPA10/S371BA(3), TIOPA10/S371SG(2) and (3) require adjustments of the CFC’s assumed total profits and the amounts to be relieved against those profits at step 2 of CTA10/S4(2), and of its creditable tax in order to apply the assumption set out in the notice under TIOPA10/S371SG(1). The assumption set out at TIOPA10/S371SF(1) is then disapplied to the extent necessary as a consequence. This means that a claim, election or disclaimer under section 371SG will only be made when assumed total profits have passed through the CFC charge gateway and there is the potential for a CFC charge under step 5 of TIOPA10/S371BC(1).

A notice under section 371SG can include a claim to rollover relief in respect of intangible fixed assets or a claim in respect of relief for unremittable overseas income under CTA09/S1275 but it does not include an election under CTA09/S18A (exemption for profits or losses of foreign permanent establishments).

The notice may only be given by a chargeable company or chargeable companies that either alone or together would have more than 50% of the chargeable profits of the CFC apportioned to them were the CFC charge to be applied.

Example

If chargeable profits of £200,000 are apportioned £50,000 to A, £60,000 to B, and £15,000 to C (all UK resident non connected companies) and £75,000 to E (a non-UK resident company), a CFC charge will be made only on A and B. No assessment is made on C because of TIOPA10/S371BD(1). Accordingly B is the chargeable company that may give notice under section 371SG (5) to (7) as it will have more than 50% of the chargeable profits that are apportionable on chargeable companies apportioned to it.

A notice has to be given within 20 months following the end of the accounting period of the CFC or within such longer period as the officer of Revenue & Customs may, in any particular case, allow. Time limits may be extended where such an officer is satisfied that there are difficulties outside the control of the UK interest holder(s) in obtaining sufficient information within the 20 month period to decide whether any claim, election or disclaimer is worthwhile.