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HMRC internal manual

International Manual

Controlled Foreign Companies: legislation - introduction and outline: Definition of Controlled Foreign Company

The first stage in establishing whether there is a Chapter IV liability is to determine whether a controlled foreign company exists. ICTA88/S747(1) defines a controlled foreign company as a company which in an accounting period is:

  • resident outside the United Kingdom, and
  • controlled by persons resident in the United Kingdom, and
  • subject to a lower level of taxation in its territory of residence.

There is no definition of ‘company’ included in Chapter IV, so the meaning given by ITA07/S992 (1) applies, see INTM254360. The definition of an ‘accounting period’ is given at INTM254390. The terms ‘resident’ and ‘territory of residence’ are dealt with at INTM254400. Until 21 March 2000, ‘control’ was determined broadly in accordance with ICTA88/S416. From that date, ICTA88/S755D provides a definition of ‘control’ specific to Chapter IV, more details of which are given in at INTM254370. If anyone has doubts about whether an overseas entity is a company they can ask CSTD Business, Assets & International Base Protection Policy Team for advice.

The test of whether a foreign company is subject to a ‘lower level of taxation’ is explained at INTM254380. A comparison is made between the tax which the company has paid in its territory of residence and the Corporation Tax which it would have paid if it had been resident in the United Kingdom. If the former is less than three-quarters of the latter the company is subject to a lower level of taxation.