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HMRC internal manual

International Manual

HM Revenue & Customs
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Controlled Foreign Companies: exemptions - Exempt Activities Test ('EAT'): Business establishment


ICTA88/SCH25/PARA6(1)(a) requires that to satisfy the exempt activities test a controlled foreign company must have a business establishment in its territory of residence throughout the accounting period under consideration. For this purpose ‘business establishment’ means premises

  • which are, or are intended to be, occupied and used with a reasonable degree of permanence; and
  • from which the company’s business in its territory of residence is wholly or mainly carried on. the number of persons employed by the company in the territory in which it is resident is adequate to deal with the volume of the company’s business; and

ii) any services provided by the company for persons resident outside that territory are not in fact performed in the United Kingdom.

The term ‘premises’ is defined to mean the following

i)an office, shop, factory or other building or part of a building; or  

ii)a mine, oil or gas well, a quarry or any other place of extraction of natural resources; or  

iii)a building site or the site of a construction or installation project, provided that the building work or the project lasts for at least twelve months.  

The use of the singular (‘an office’, ‘a mine’, etc) includes the plural in this context. Thus a company whose business in its territory of residence is carried on from a number of sites within the territory will be treated as having a business establishment there even if no one site can be identified as the main place of business in the territory.

The purpose of the ‘business establishment’ requirement is to ensure that a controlled foreign company has a reasonably permanent physical presence in its territory of residence. A company whose presence in a country consists of little more than a brass plate on an office building and which makes use of the premises of a managing agent or legal adviser or of a hotel room there for an occasional business meeting will clearly not be able to show that it is engaged in exempt activities. On the other hand it is not necessary for a company to own its own premises. Provided that there were premises available for its use at all times, sharing of a building or even an office could be sufficient to establish that a company had a business establishment.

Whether a business establishment is ‘occupied and used with a reasonable degree of permanence’ will depend on particular facts. At one end of the scale, a holding company’s business might need only occasional attendance of its staff at its premises, and the use of an office on such occasions would suffice, provided that the office was retained, or intended to be retained by the company for its use for a considerable period of time and was always available. Continuous occupation of the office during normal working hours would not be required. At the other end of the scale, a company purporting to do business with the general public would be expected to have an office, shop, etc, actually occupied by its staff for at least a substantial part of each working day

A number of insurance companies have rented accommodation from an insurance management agency. Assuming that there is a rental agreement in place and the premises are occupied throughout the period by the staff of the controlled foreign company the requirement will be satisfied. The mere fact that premises are shared need not in itself constitute a reason why the requirement should not be satisfied.