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HMRC internal manual

International Manual

Controlled Foreign Companies: How the corporate tax regime works for CFCs: Clearances: What to include in the application

Precisely what information the application should contain will of course depend on the nature of the clearance requested, the extent of the UK interest and the characteristics of and operations carried on by the CFC. Consequently it is not feasible to list the information required in all circumstances but the more relevant information provided with the initial application, the greater the likelihood it can be considered without the need for provision of additional information. The material required has also been kept intentionally flexible to ensure that the cost of seeking a clearance in any particular case is no greater than absolutely necessary.

HMRC would expect to receive the following information in all applications.

  • A clear indication at the start of the application as to what chapters and particular legislation the request for clearance refers to and for which accounting period(s) of the CFC.

Details of the CFC

  • The name of the CFC.
  • The territory or territories in which the CFC is resident and any other territories in which it carries on activities either in partnership or through a permanent establishment(s) in the accounting period.
  • The CFC’s first accounting period for which clearance is sought.
  • The CFC’s anticipated share capital/reserves at the beginning of the first accounting period.
  • A description of all business undertaken by the CFC in the first accounting period, together with details of investments held and non-trading finance profits arising to the CFC in that accounting period. Any anticipated changes in subsequent accounting periods should also be detailed.
  • The nature and extent of all direct or indirect transactions or arrangements between the CFC and overseas associated companies or entities in the first accounting period. Any anticipated changes in subsequent accounting periods should also be detailed.
  • Full details of all direct or indirect transactions or arrangements between the CFC and UK resident persons undertaken in the first accounting period. This will include for example interest on loans, royalties, payments for services, purchase or sale of goods etc. Any anticipated changes in subsequent accounting periods should also be detailed.

Details of the group and UK ownership structure

  • Diagrams of the relevant part of the overall group structure that contains the CFC (and any other group companies with which the CFC transacts or is involved in an arrangement) together with the UK ownership structure clearly detailed. Where changes are expected in the group structure it would be helpful for anticipated changes to be highlighted.
  • The name of the UK resident company or companies that hold an interest or interests in the CFC, the percentage interest held and their accounting period dates.
  • The UTR number of UK interest holding companies where known.

For applications relating to specific accounting periods

  • The financial statements of the CFC for either the accounting period or the immediately preceding accounting period if these are not available. If the CFC does not produce financial statements, please send any management accounts or equivalents for the accounting period. If the CFC has not yet been set up or has not yet commenced any business activity, please send projections of estimated capital, assets and liabilities and profit or losses for the accounting period.
  • Details of any projected tax payable for the accounting period for which clearance is sought and how it has been computed.

Relevant transactions and structuring

  • A full description of the overall structure, arrangements and transactions relevant to the application of the CFC rules to the CFC. This should include any step plans, diagrams, group structure, contracts, agreements or other relevant documents that cover the various stages of the arrangements.

Tax analysis for specific legislation in relation to which clearance is sought

(Depending on the particular circumstances of the clearance application, one of the following may be required)

  • A full analysis of why it is considered that relevant provisions will apply in order to prevent assumed total profits of the CFC passing through the CFC charge gateway
  • Or a computation of the amount of assumed total profits of the CFC that pass through one of the CFC charge gateways in the accounting period and a calculation of the apportionment of the chargeable profits to UK relevant interest-holders plus details of any creditable tax for the accounting period.
  • A full analysis of why it is considered that the conditions of an entity exemption are met.
  • A full analysis of how it is considered relevant provisions apply to a particular set of circumstances if an opinion is requested on how mechanical provisions such as those covering the computation of creditable tax in Chapter 16 apply.