Beta This part of GOV.UK is being rebuilt – find out what beta means

HMRC internal manual

International Manual

Controlled Foreign Companies: exemptions - excluded countries: Terms of List (schedule)

The list (schedule) is divided into two parts:-

  • Where a company is ‘resident’ in a country in Part I of the list, passes the anti avoidance provision and satisfies the income and gains requirement (INTM254500) no apportionment falls to be made.
  • Where a company is resident in a territory on Part II of the list, passes the anti avoidance provision and satisfies the income and gains requirements (INTM254500) and is not entitled to any of the listed tax exemptions, reductions or other benefits, nor falls within any condition specified in relation to that territory, no apportionment falls to be made.

In all cases the conditions of residence, anti avoidance and the income and gains conditions must be satisfied throughout the accounting period for the exemption to apply. Likewise entitlement to the tax exemption, tax reduction or other benefit on Part II of the list must not arise at any time during the controlled foreign company’s accounting period for the exemption to apply.

Companies involved in a scheme or arrangement to achieve a reduction in UK tax SI 1998/3081 Reg 4(A1) & (A2)

For accounting periods of controlled foreign companies beginning on or after 31 March 2005* that are resident in any territory outside the UK the excluded countries exemption will only apply if during the accounting period the company has not been involved in a scheme or arrangement the purpose, or one of the main purposes, of which is to achieve a reduction in UK tax.

The legislation offers definitions on the following terms

“Arrangement” - this is taken to be an arrangement of any kind, whether in writing or not

“United Kingdom Tax” - this means corporation tax or any tax chargeable as if it were corporation tax

The effect of the modifications at Reg 4 for accounting periods beginning on or after 31 March 2005 is that Paragraphs 4(A1) & (A2) overarch both lists to exclude from the exemption at section 748(1)(e) any company that would normally meet the terms set out above for ECR but is involved in a scheme or arrangement to avoid UK tax.

*When considering whether an accounting period begins on or after 31 March 2005 SI 2005/186 reg. 3 offers clarity where an amendment to an Accounting Period (AP) brings forward the end of the preceding AP.