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HMRC internal manual

International Manual

Controlled Foreign Companies: Management and collection of a CFC charge and reliefs available against a CFC charge: Relief against a sum charged on a chargeable company

Relief against a sum charged on a chargeable company

CFC accounting periods beginning on or after 8 July 2015

In respect of CFC’s that have an accounting period beginning on or after 8 July 2015, it is not possible for the chargeable company to make a claim under TIOPA10/S371UD(2) for relief in respect of relevant allowances to be set against the sum charged at step 5 in TIOPA10/S371BC(1).

The purpose of this amendment in F(No 2)A15/S36 is to ensure that UK tax is actually paid on profits that have been diverted from the UK to a CFC and that relevant allowances do not reduce or eliminate this amount. 

The changes made repeal TIOPA10/S371UD(2) removing the ability of UK companies to reduce or eliminate a CFC charge by effectively offsetting UK losses and surplus expenses against a CFC’s chargeable profits that arise on or after 8 July 2015.

Straddling periods (CFC accounting periods beginning before but ending on or after 8 July 2015)

For CFC accounting periods which start before but end after 8 July 2015, the sum charged on a company at step 5 in TIOPA10/S371BC(1) is apportioned between two notional accounting periods of the CFC on a just and reasonable basis. This ensures that sums charged on a company at step 5 in TIOPA10/S371BC(1) based on a CFC’s chargeable profits which arise before 8 July 2015 can still be reduced by relief for relevant allowances under TIOPA10/S371UD(2) in the manner set out below.

Relief previously available (CFC accounting periods ending before 8 July 2015)

The manner in which certain reliefs may be set against a CFC charge is set out at TIOPA10/S371UD.

If a chargeable company in relation to a CFC’s accounting period is entitled, or on the making of a claim, would be entitled to a deduction in respect of a “relevant allowance” for the “relevant corporation tax accounting period”, a claim may be made under TIOPA10/S371UD(2) for relief in respect of the “relevant allowance”.

For the purposes of TIOPA10/S371UD “the relevant corporation tax accounting period” has the meaning given by TIOP10/S371BC(3) and “relevant allowance” means:

  • any loss to which section 37 or section 62(1) to (3) of CTA 2010 applies,
  • any qualifying charitable donation,
  • any expense of management to which section 1219(1) of CTA 2009 applies,
  • any adjusted basic life assurance and general annuity business (“BLAGAB”) management expenses for the purposes of section 73 of FA 2012,
  • any excess to which section 260(3) of CAA 2001 applies,
  • any amount available to the company by way of group relief, or
  • any non-trading deficit on the company’s loan relationships.

If a claim is made, the relief is given by setting off the “relevant sum” against the sum charged on the company at step 5 in TIOPA10/S371BC(1). The “relevant sum” is a sum equal to corporation tax at the “appropriate rate” on the amount of the relevant allowance claimed. The “appropriate rate” has the meaning given by TIOPA10/S371BC(3).

However for sums charged on a company by virtue of TIOPA10/S371BH(2) (i.e. a chargeable company carrying on BLAGAB , “the appropriate rate” means the rate given by TIOPA10/S371BH(3)(a) and “relevant allowance” means any adjusted BLAGAB management expenses for the purposes of section 73 of FA 2012.

The amount of the relevant allowance specified in the claim is taken, for the purposes of the Taxes Acts, as having been allowed as a deduction. No other relief is available to be given against the sum charged on a company at step 5 in TIOPA10/S371BC(1).