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HMRC internal manual

International Manual

Controlled Foreign Companies: Computation of Chargeable Profits and Creditable Tax: Effect on other liabilities

The assumed United Kingdom residence of a foreign company will not affect the computation of actual UK tax liability. For example, where the company carries on a trade in the UK through a permanent establishment, the profits of that trade chargeable to Corporation Tax are computed in the normal way in accordance with CTA09/Part 2, ICTA88/SCH24/PARA1(5)).

If the company sells UK patent rights for a capital sum, the operation of CTA09/S912), which in these circumstances requires a non-resident person to pay tax on the sum received, is not affected by the provisions of ICTA88/SCH24.

The assumption of residence in the UK does not require the company to account for Income Tax on interest which it pays.

It is specifically provided in ICTA88/SCH24/PARA1(3) that amounts received by a foreign company without any deduction of or charge to tax under the provisions of CTA09/S1279 (securities held by non-residents) are nevertheless to be included in the company’s chargeable profits.

The assumption of UK residence applies only for the purposes of computing chargeable profits etc, and it is only the company whose profits are being computed which is assumed to be resident.


For example, A and B are controlled foreign companies and subsidiaries of UK company C.

In computing A’s chargeable profits A and C are treated as resident and B as non-resident, and in computing B’s chargeable profits B and C are treated as resident and A as non-resident. Consequently, the transfer pricing legislation at TIOPA10/Part 4 (previously ICTA88/SCH28AA) may apply to increase C’s profits in respect of transactions with A and B because both companies are resident outside the United Kingdom and therefore outside the charge to corporation tax.

TIOPA10/Part 4 may also apply to increase the chargeable profits of A in respect of transactions with B because A is assumed to be within the charge to corporation tax while B is not.

TIOPA10/Part 4 would not apply to increase the profits of A in respect of transactions with C because, for the purposes of computing A’s profits, both A and C are within the charge to corporation tax and TIOPA10/Part 4 will not therefore apply.