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HMRC internal manual

International Manual

Controlled Foreign Companies: apportionment of chargeable profits and creditable tax: Apportionment and assessment

Apportionment of Profits and Creditable Tax and Assessment of Liability

ICTA88/S747(3) and (4) and ICTA88/S754(2) ICTA

Where an overseas company falls within the definition of a controlled foreign company at ICTA/S747(1) and none of the exemptions at ICTA88/S748 applies United Kingdom interests must apportion the chargeable profits and creditable tax of the company among the persons with an interest in it.

Where Chapter IV applies for an accounting period of a controlled foreign company, the chargeable profits (INTM255620) and creditable tax (INTM255830) of the company are apportioned among the persons (whether resident in the UK or not) who had an ‘interest’ in the company at any time during the accounting period.

The apportionment of chargeable profits, etc, may result in chargeable profits being apportioned to both individuals and companies and to non-residents as well as residents. However, assessments under Chapter IV are only to be made on companies resident in the UK, subject to the requirement at INTM255870. The assessment under Chapter IV is to a sum equal to Corporation Tax at the appropriate rate (see below) on the apportioned profits less any creditable tax (INTM255830) included in the apportionment. The net sum assessed is payable by the resident company as if it were an amount of Corporation Tax. The assessment is due for the accounting period of the resident company in which the accounting period of the controlled foreign company ends.

The appropriate rate of Corporation Tax for Chapter IV purposes is the full Corporation Tax rate in force for the accounting period of the resident company for which the assessment is made. If that accounting period falls into two financial years the rate to be charged is the average of the Corporation Tax rates in force over the accounting period. The small profits rate (CTA10/S20) does not apply because a claim under CTA10/S20 is a claim to have tax calculated as if the rate of tax were at the rate known as the small profits rate. CTA10/S20 does not establish a separate rate of corporation tax and so cannot be the ‘appropriate rate’.


X Ltd, a United Kingdom resident company with an annual accounting date of 30 September, holds 40% of the share capital of G, a company resident for tax purposes in Switzerland. In the year ended 31 March, G has chargeable profits of £100,000 on which it has paid Swiss tax of £10,000. G is a controlled foreign company and an apportionment falls to be made under Chapter IV for accounting period ended 31 March. As a result, £40,000 of its chargeable profits and £4,000 of its creditable tax are apportionable to X Ltd. X Ltd self assesses ICTA88/S747 tax for its accounting period ended 30 September, as follows:

Chargeable profits 40,000
Tax at “appropriate rate” (30.5%) - see below 12,200
Creditable tax 4,000
Assessed under ICTA88/S747(4)(a) 8 , 2 0 0  8,200

The “appropriate rate” of tax is computed as follows:

CT rate Financial Year 1 31%  
CT rate Financial Year 2 30%  
Part of accounting period in financial year 1 6/12 x 31% = 15.5%
Part of accounting period in financial year 2 6/12 x 30% = 15.0%