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HMRC internal manual

International Manual

Controlled Foreign Companies: How the corporate tax regime works for CFCs: HMRC enquiries: records

Statutory requirements

There are no specific provisions within TIOPA10/Part 9A relating to the keeping of records for the purposes of self assessment.

Under FA98/SCH18/PARA21 the United Kingdom interest completing the supplementary page for CFCs must keep such records as may be needed to enable a correct and complete return to be made.

Any records within FA98/SCH18/PARA21 should be preserved for 6 years from the end of the period for which the company is required to deliver the return (FA98/SCH18/PARA21(2)). Further details of these requirements are found in the general Manuals for Corporation Tax.

Additionally, under FA08/SCH36 HMRC may require the company to produce such documents in the company’s possession or power and to provide them with such information and in such form as may reasonably be required for the purpose of an enquiry. In most cases, and certainly where the majority interest is held by the same group, HMRC would expect the records of the CFC to be in the possession or power of the United Kingdom company.

Documents and information that may be requested

The starting point for establishing whether an entry is required on a return and what that entry will be will almost always be the accounts of the overseas company. The Officer may wish to see correspondence (or similar material) with the CFC on all matters relating to decisions made in respect of the return.

The United Kingdom company may be required to compute the chargeable profits of the CFC and the inspector may ask for records which show the derivation of the figure.

Decisions by a United Kingdom company as to whether it considers an exemption applies, will in most cases be based on information obtained from the CFC and this may also be requested, together with any additional details or documents which the United Kingdom company considered necessary to establish the correctness of the claim.

In some cases the Officer may request further information which the United Kingdom company will need to obtain directly from the CFC. For example, where enquiries are made into a purpose test, the minutes of the directors’ meetings may be relevant or, in the case of the business premises condition, a rental agreement for the premises occupied.

In certain cases documents originating with the United Kingdom company may also have a bearing on exemptions - for example a purpose test. Here background papers in respect of transactions with the CFC or the functions of the CFC will be relevant.

The documents and information that are relevant in any particular case will depend on the precise circumstances of that case. It is therefore not possible to give comprehensive advice at a general level. If a company is in any doubt about what information and records it would be prudent for it to keep in any particular case, it can seek guidance from CSTD Business, Assets & International Base Protection Policy team.

The emphasis will always be on ensuring that the United Kingdom company is asked for no more than the minimum necessary information to verify its return in respect of CFCs.

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Appeals against information notices - FA08/SCH36/PARA29-31

An appeal may be brought by the company against a requirement to produce documents or information under FA08/SCH36. Companies will want to ensure that they have sufficient documents or information to hand to establish to their own satisfaction the justification for any exemptions. But HMRC will not insist on the production of documents or information where, despite strenuous efforts, material cannot be recovered from the CFC because, for example, the United Kingdom interest holder has only a minority interest and co-operation is not forthcoming. HMRC will be happy to provide guidance in any such rare cases, and consider clearance applications.