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HMRC internal manual

International Manual

Controlled Foreign Companies: Assumed Taxable Total Profits, Assumed Total Profits and the Corporation Tax Assumptions: Unremittable Overseas Income

Unremittable overseas income

Relief under CTA09/S1275 (relief for unremittable overseas income) is in principle available to a CFC in the computation of its assumed taxable total profits but only in respect of those profits which pass through the CFC charge gateway and fall to be calculated under TIOPA10/S371BA(3). Relief is dependant on a notice being given in the correct form and within the time limits prescribed in TIOPA10/S371SG.

However the operation of CTA09/S1275 is also further restricted for the purposes of TIOPA10/Part 9A by section 371SN. This provides that income qualifies for relief only if it is not possible to remit it either -

  • to the UK, or
  • to the CFC’s territory of residence as determined under Part 9A or any other territory overseas in which the CFC is resident.

It follows that income arising in a territory of residence of the CFC can never be excluded from assumed taxable total profits regardless of whether it can be remitted to the UK.

When any income ceases to be unremittable it must be added back to the assumed taxable total profits of the CFC (CTA09/S1276 to 1278).

Example

A CFC is carrying out sales activities through a permanent establishment established in a territory outside its territory of residence. The territory in which the permanent establishment is operating has a volatile political regime and payment of sales income that is owing to the CFC by the government and has been accounted for in its accounting period ended 31/12/2015 is deferred indefinitely.

If the CFC has to compute its assumed total profits for this accounting period on the basis that they pass through the CFC charge gateway and fall to be calculated under TIOPA10/S371BA(3), relief can be given under TIOPA10/S371 SG(1) as long as notice is given by the chargeable company within 20 months of the end of the accounting period ended 31/12/2015.