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HMRC internal manual

International Manual

Controlled Foreign Companies: exemptions - Exempt Activities Test ('EAT'): Qualifying exempt activity income


Income of a company which represents qualifying exempt activity income is income which is directly or indirectly derived from companies which:

  • it controls including ‘maximum permitted shareholding companies’ and ‘40/40’ controlled foreign companies (see INTM254940) and which
  • throughout that period are not superior holding companies but are engaged in exempt activities or are exempt trading companies, and which
  • are not holding companies other than local holding companies.


A Ltd owns B Ltd which itself owns six trading companies carrying on exempt activities and one local holding company. All are non-resident companies. The seven companies owned by B Ltd all pay a dividend to B Ltd which in turn pays that dividend to A Ltd. That dividend in the hands of A Ltd and B Ltd is qualifying exempt activity income because it is derived either directly (in the case of B Ltd) and indirectly (in the case of A Ltd) from companies satisfying the above requirements.