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HMRC internal manual

International Manual

From
HM Revenue & Customs
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Controlled Foreign Companies: Residence of CFCs: Introduction

The terms “resident” and “residence” are used in connection with TIOPA10/Part 9A in a number of different senses. The meaning of the terms may vary and care should be taken to establish which of the possible meanings is appropriate to the particular context.

Questions of residence arise for the purposes of:

  • determining whether a company is UK resident or non-UK resident,
  • establishing a CFC’s territory of residence for the purposes of the Excluded Territories Exemption (ETE) at Chapter 11.
  • establishing in which territory a CFC is resident for the purposes of the Tax Exemption at Chapter 14.

Particular care should be taken when considering residence for the purposes of the ETE as the test of residence is different for the purposes of the modified ETE as contained within the Controlled Foreign Companies (Excluded Territories) Regulations 2012 (the Regulations) than it is for the ETE as set out in Chapter 11.

UK resident or non-UK resident?

A CFC is defined at TIOPA10/S371AA(3) as a non-UK resident company which is controlled by a UK resident person or persons. So in order to determine whether a company is a CFC, it is necessary to determine in which territory a company is resident and whether it is controlled by persons resident in the UK.

A company which is resident in the UK and is therefore liable to corporation tax on its world-wide profits cannot be a CFC. A company should be regarded as non-UK resident if it is not resident in the UK or is treated as a treaty non-resident company under CTA09/S18. UK residence is determined either under the ‘central management and control’ test or the incorporation rule in CTA09/S14. A company with dual residence, for instance, one which is resident in the UK because its central management and control is situated here and which on some other criterion (such as place of incorporation) is treated by another country as resident there, is not a CFC unless it is treated as a treaty non-resident company under CTA 2009/S18.

Controlled by persons resident in the UK

The residence status of the person(s) who control an overseas company may have to be considered in order to determine whether the company is controlled by persons resident in the UK (although in most cases this will be straightforward). An overseas company should be regarded as controlled by UK residents if the persons (both individual and corporate) who control it are resident in the UK for tax purposes.