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HMRC internal manual

International Manual

Controlled Foreign Companies: exemptions - Exempt Activities Test ('EAT'): Companies holding shares and securities in subsidiaries

A controlled foreign company cannot normally be regarded as engaged in exempt activities if its main business consists of investment business. There is however an exception to this general rule for certain types of companies holding shares and securities in subsidiaries. The exception is made because some of these companies are established for sound commercial reasons and are not used in ways which are designed to reduce United Kingdom tax liabilities. Such companies will either satisfy the exempt activities test or motive test (INTM255150) or both.

For such a company to satisfy the exempt activities test it must -

  • comply with the general requirements regarding residence, business establishment and place of effective management (see (a)-(c) of INTM254810),
  • come within the statutory definition of a holding company (INTM254940) or a superior holding company (INTM254950); and
  • meet certain conditions regarding the sources of its income (INTM254960 to INTM255050).