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HMRC internal manual

International Manual

Controlled Foreign Companies: exemptions - Exempt Activities Test ('EAT'): Investment business


For the purposes of the exempt activities test each of the following activities constitutes investment business:

  1. The holding of securities, or intellectual property.
  2. Dealing in securities, other than in the capacity of a broker.
  3. The leasing of any description of property or rights.
  4. The investment in any manner of funds which would otherwise be available, directly or indirectly, for investment by or on behalf of any person (whether or not resident in the United Kingdom) who either has control of the controlled foreign company, alone or together with others, or is connected or associated with persons having control of the controlled foreign company.

The reference to ‘holding of securities’, etc (see (a) above) applies both to companies which hold securities etc beneficially and to companies which hold them in a representative or fiduciary capacity (for example, as nominee or trustees).

‘Intellectual property’ is defined at ICTA88/SCH25/PARA9(1A) as including (in particular):

  • any industrial, commercial or scientific information, knowledge or expertise
  • any patent, trade mark, registered design, copyright or design right (or any rights under the law of a country outside the UK which correspond or are similar to these)
  • any licence or other right in respect of intellectual property (or any rights under the law of a country outside the UK which correspond or are similar to these).

The term ‘securities’ includes shares. The term ‘broker’ (see (b) above) is defined to include any person offering to sell securities to, or purchase securities from, members of the public generally - ICTA88/SCH25/PARA9(2). Certain ‘brokers’ such as stockbrokers, may take title. Although this is not in strictness ‘broking’ they are considered within the category if their doors are open to the public, with whom they deal directly.

A company will come within (d) above only if the investment of funds constitutes its main business. The making of investments in the normal course of a trade (for example, insurance) would not constitute investment business. Where however the scale of the investments held is out of all proportion to the extent of the trading activities, it is likely that the company’s main business is investment business and that its trade is secondary to that business.

A company which is mainly engaged in banking, deposit-taking, money-lending, debt factoring or a similar business cannot be regarded as having investment business as its main business by virtue of (a)-(d) above. A company mainly engaged in certain other types of financial business for example, finance leasing or hire purchase will however be engaged in investment business by virtue of (c) above - ICTA88/SCH25/PARA9(3).