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HMRC internal manual

International Manual

Controlled Foreign Companies: exemptions - the motive test: Application of motive test: examples - intra-group service providers failing the exempt activities test

Example 8

A subsidiary of a United Kingdom group is resident in Hong Kong and purchases goods on behalf of the group from third party manufacturers in Hong Kong and the Far East. It has no other income. The facts show that:

  • the main reason for the existence of the company is to act as a group purchaser and that the company has to be in Hong Kong for specific commercial reasons;
  • whilst there is a reduction in UK tax by a diversion of profits from the UK, its achievement is not another main reason for the company’s existence; and
  • whilst transactions between the Hong Kong subsidiary and the UK group have achieved a more than minimal reduction in UK tax, that achievement was not one of the main purposes of the transactions.

Both legs of the motive test are therefore passed.