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HMRC internal manual

International Manual

Controlled Foreign Companies: exemptions - excluded countries: Meaning of ‘Resident’

It is necessary to establish, for the purposes of the regulations, whether a controlled foreign company is resident in a particular territory and whether another company is resident in the same territory as the controlled foreign company. The meaning of resident in this context is different from the various meanings of the term elsewhere in Chapter IV. A company is resident in a country for the purposes of the regulations if, under the laws of that country, it is liable to tax there by reason of ‘domicile, residence or place of management’. In this context the terms ‘domicile’, ‘residence’ and ‘place of management’ bear the meaning which they have under the law of the foreign country under consideration and not their meaning under United Kingdom law. A company which does not pay tax on its profits simply as a result of, for example, losses brought forward, is still ‘liable to tax’ in a territory.If there is no test of residence based on domicile, residence or place of management in that territory or, if there is such a test, but it does not apply to the company in question, then the place of residence will be the place of incorporation. This means, for example, that a United States limited liability company will be resident in the United States notwithstanding that the company itself (as opposed to the shareholders) is not liable for tax there. For the purposes of the regulations a controlled foreign company is regarded as resident in a territory in an accounting period only if it is so resident throughout that accounting period.

Accounting Periods beginning on or after 3 December 2004

If there is no test of residence based on domicile, residence or place of management in that territory or, if there is such a test, but it does not apply to the company in question, then the place of residence will be the place of incorporation provided that it is liable to tax in that place on its profits. This means, for example, that a United States limited liability company will not be resident in the United States for the purpose of the Regulations as it is not liable for tax there. For the purposes of the regulations a controlled foreign company is regarded as resident in a territory in an accounting period only if it is so resident throughout that accounting period.