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HMRC internal manual

International Manual

Controlled Foreign Companies: legislation - introduction and outline: Nature of the Controlled Foreign Companies’ rules

Chapter IV of Part XVII ICTA 1988 charges United Kingdom resident companies to tax in respect of the income of certain controlled foreign companies in which they have an interest. A controlled foreign company is an overseas company controlled by United Kingdom residents which pays less than three quarters of the tax which it would have paid on its income had it been resident in the UK. The controlled foreign companies’ provisions are directed at companies which make use of low tax territories or other favourable overseas tax regimes to reduce their UK tax liabilities.

Before the introduction of self assessment for corporation tax, a direction from the Board of Inland Revenue (later HMRC) was needed to charge a UK company under Chapter IV of Part XVII ICTA 1988 in respect of the profits of a controlled foreign company.

Under self assessment United Kingdom companies are required to self assess their Chapter IV liability. This requirement applies to UK companies for accounting periods ending on or after 1 July 1999, where:

  • they have a relevant interest in a controlled foreign company, and
  • the accounting period of that controlled foreign company ends within their own accounting period.


A Ltd, a United Kingdom company has an accounting period beginning on 1 August 1998 and ending on 31 July 1999. A Ltd has a relevant interest in a controlled foreign company, B Ltd, whose accounting period ends on 31 August 1998. A Ltd is required to self assess any liability arising in respect of its interest in B Ltd in relation to B Ltd’s accounting period ended 31 August 1998 in its own return for the accounting period 31 July 1999.