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HMRC internal manual

International Manual

HM Revenue & Customs
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Controlled Foreign Companies: exemptions - the motive test: The diversion of profits leg of the motive test: related company

ICTA88/SCH25/PARA19 (2)

A company is ‘related’ to a controlled foreign company if -

  • it is resident outside the United Kingdom; and
  • it is connected or associated (see INTM254410) with the controlled foreign company; and
  • in relation to any company or companies resident in the United Kingdom, it fulfils or could fulfil, directly or indirectly, substantially the same functions as the controlled foreign company.

The term ‘related company’ has a restricted meaning in the context of the motive test. The reason for making the assumption that ‘related’ companies do not exist is to forestall any contention that, in the absence of a controlled foreign company, it would be reasonable to suppose that its receipts would be received by another connected foreign company fulfilling the same function rather than by a UK resident.