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HMRC internal manual

International Manual

Controlled Foreign Companies: Residence of CFCs: Elections and designations about residence

As earlier subsections i.e. (4) to (7) of TIOPA10/S371TB take priority over later subsections, an election or designation is likely to be made in circumstances where both effective management and all of the CFC’s assets are located outside of the territories in which the CFC is liable to tax under the main rule at TIOPA10/S371TB(1).

Elections may be made by the companies in the group which, individually or in combination, are likely to be chargeable companies entitled to more than half of the CFC’s chargeable profits if they were to be subject to the CFC charge at TIOPA10/S371BC(1).

The elections, which are irrevocable, must be:

  • made by notice to an officer of HMRC,
  • made within 12 months of the end of the CFC’s relevant accounting period,
  • state, in relation to each company making the election, the percentage of the CFC’s chargeable profits for the relevant accounting period that are likely to be apportioned to the company in accordance with step 3 in TIOPA10/S371BC(1) were section 371BC(1) (charging the CFC charge) to apply, and
  • signed on behalf of each company making the election.

Where an election has not been made within the time limit, an officer of HMRC may make a designation of the resident territory. The notice of the designation is provided to each of the companies which would be likely to be a chargeable company, were the CFC charge to be charged in relation to the accounting period. The notice must specify the date on which it is made, the CFC in relation to which it refers, the relevant accounting period for which it is made and the territory designated. A designation by an officer of HMRC is also irrevocable.

Once made, the election or designation of residence will apply to the CFC’s accounting period and each successive accounting period (even if the interest-holders in the CFC or the extent of their interest change) until such time that the CFC is no longer resident in one or more territories in which it was liable to tax by reason of domicile, residence or place of management or the CFC becomes resident in an additional territory by reason of domicile, residence or place of management (TIOPA10/Ss371TC(9) and (10)).