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HMRC internal manual

International Manual

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HM Revenue & Customs
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Controlled Foreign Companies: Computation of Chargeable Profits and Creditable Tax: Disclaimer and variation of reliefs and claims, or elections that are not reliefs

ICTA88/SCH24/PARA4(2)

The reliefs which the foreign company is assumed to have claimed may be varied on certain conditions. The conditions are that-

  • notice is given to an officer of HM Revenue & Customs in writing within 20 months following the end of the accounting period, or within such further time as the board may allow (see INTM255730); and
  • the variation of reliefs is requested by the company or companies which have a majority interest in the foreign company concerned (see INTM255720).
  • the disclaim is one which could be made by a company within the charge to Corporation Tax. (It is assumed that the disclaim is made within the appropriate time limit.)

Claims or elections which are not reliefs may be made under this paragraph in respect of the accounting period for which the acceptable distribution policy has been pursued or an apportionment falls to be made. On the strict wording of the legislation claims or elections cannot be made prior to either an apportionment falling to be made or the payment of the dividend. A claim or election cannot therefore prevent an apportionment falling to be made (with the resulting consequences on deemed United Kingdom residence (see INTM255630) and hence continuity in the effects of the claim or election) although it can mean that no self assessment is due because, for example, the chargeable profits are de minimis.

For AP’s ending on or before 30 June 2009, if a dividend paid in pursuit of an acceptable distribution policy is, as a result of a claim, in excess of 90% of the net chargeable profits, then the excess is available to satisfy an acceptable distribution policy for a subsequent period (see INTM254660). However this strict rule will not be applied (in the absence of avoidance) where an election under the The Exchange Gains and Losses (Transitional Provisions) Regulations 1994 (regulation 3(5), SI1994/3226) is made. The effect of such an election may be taken into account in computing the quantum of the chargeable profits (and hence a dividend payable to satisfy an acceptable distribution policy) before payment of that dividend. This is acceptable because the preconditions for such an election in regulation 1(5) will result in the controlled foreign company being deemed to have continued residence in the UK under ICTA88/SCH24/PARA2(1) for each accounting period for which the election has effect, thus giving the necessary degree of continuity.