INTM254950 - Controlled Foreign Companies: exemptions - Exempt Activities Test ('EAT'): Definition of a superior holding company

ICTA88/SCH25/PARA6(6), and PARA12A(1)-(3)

A controlled foreign company will be treated as a superior holding company for the purposes of the exempt activities test if it is

  1. a company the business of which consists wholly or mainly in the holding of shares or securities of companies (or a company) which are

i) holding companies or local holding companies, or

ii) themselves superior holding companies, or

  1. a company which would fall within (a) above if there were disregarded so much of its business as consists in the holding of property or rights of any description, for use wholly or mainly by companies which it controls and which are resident in the territory in which it is resident.

A company may engage in activities other than the holding of shares or securities in the types of company specified above, provided that its business consists mainly in the holding of such shares or securities (or would so consist if the part of its business relating to the holding of property etc for use by its subsidiaries resident in its own territory of residence were disregarded). So, for example, the existence of some trading activity, shareholdings not of the type specified, (for example, in associated companies or dormant subsidiaries) or portfolio investments will not prevent the company from qualifying as a holding company, provided that its business consists wholly or mainly in the holding of shares or securities in the types of company specified above. ‘Wholly or mainly’ means more than 50% of the business.

It is recognised that there may be occasions where information about the Controlled Foreign Company may not be available or the time it would take to verify beyond any doubt that the Controlled Foreign Company satisfies all of the conditions for the exemption would be disproportionate. In these circumstances, see INTM256620 for further guidance.