HMRC internal manual

International Manual

INTM254710 - Controlled Foreign Companies: exemptions - Acceptable Distribution Policy ('ADP'): Non-resident shareholders: one class of shares

The ADP exemption was abolished in FA09 for accounting periods of CFCs beginning on or after 1 July 2009. This guidance only applies to APs ending on or before 30 June 2009

ICTA88/SCH25/PARA2(4) and 2A(5)(a) and (b)

The net chargeable profits of a controlled foreign company are not as a general rule reduced to take account of non-resident shareholders. So, for example, a controlled foreign company whose shares are held 75% by United Kingdom residents and 25% by otherwise unconnected non-residents might never be able to ensure that at least 90% of its net chargeable profits were paid to United Kingdom residents.

There are, however, two exceptions to the general rule referred to above. The first is set out below; the second is dealt with at INTM254720 to INTM254770. The first exception applies where -

  1. throughout the accounting period in question all the company’s issued shares are of a single class, and
  2. at the end of the accounting period some of those shares are held by persons resident outside the United Kingdom, and
  3. at no time during the accounting period does any person have an interest in the company other than an interest derived from the issued shares of the company.

If all the above conditions apply the adequacy of the dividend reaching United Kingdom residents is determined by reference to the ‘appropriate portion’ of the net chargeable profits. For this purpose the appropriate portion is the fraction of (at the end of the accounting period concerned)

number of issued shares by virtue of which persons resident in the United Kingdom have interests in the company
total number of issued shares


A controlled foreign company has net chargeable profits of £300,000 in the accounting period to 31 December. At the end of that accounting period the company has 1,000 issued shares of which 600 are held by persons resident in the United Kingdom and 400 are held by non-residents. The appropriate portion of the available profit is:

600/1,000 x £300,000 = £180,000

The amount which needs to be paid to United Kingdom residents is 90% of £180,000.