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HMRC internal manual

International Manual

Controlled Foreign Companies: exemptions - Exempt Activities Test ('EAT'): Dealing in goods

ICTA88/SCH25/PARA6(2)(a)(ii) and PARA10

A controlled foreign company cannot satisfy the exempt activities test if its main business consists of dealing in goods for delivery to or from the United Kingdom or to or from connected or associated persons (as defined in INTM254410). However, goods which are actually delivered into the company’s territory of residence are not taken into account for this purpose. Goods manufactured in a territory by one company and sold to another company resident in the same territory cannot be left out of account since they will not have been delivered into the territory. This restriction ensures that a company through which goods are invoiced but which does not take physical delivery of the goods in its territory of residence cannot qualify for exclusion from Chapter IV under the exempt activities test. The test is satisfied where most of the goods (in money’s worth) are delivered into the territory of residence.

‘Dealing’ is not defined, but implies buying and selling of goods in unchanged form. Whether or not a company is dealing will depend upon the facts of each individual case. Where the goods are subjected to a process by a company, the company’s business will not normally be dealing in those goods. Where however the processing is minimal, for example, labelling or simple packaging of the goods, the processing is likely to be incidental to the buying and selling of the goods.