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HMRC internal manual

International Manual

Controlled Foreign Companies: apportionment of chargeable profits and creditable tax: ‘Entitled to acquire’ and ‘entitled to secure’


The terms ‘entitled to acquire’ and ‘entitled to secure’ in (a), (b) and (c) of INTM255890 apply both where a person is presently entitled to acquire or secure an asset at a future date and where a person will at a future date be entitled to acquire or secure that asset. They do not extend to situations where, in an entirely arm’s length transaction, one party temporarily has future rights over the other’s property, for instance, in the period between exchange of contracts and completion of a sale of land.

A person whose entitlement to acquire or secure is contingent on a default of any person, including the controlled foreign company in question, will not be treated as having an interest in the controlled foreign company, unless that default has occurred.

So, for example, a person will have an interest in a controlled foreign company if, by means of a contractual right or some other arrangement, he can

  • require a shareholder to transfer shares to him, or
  • secure the issue to him of unissued share capital of the company, or
  • secure that if a distribution is made by the company he has a share in the distribution or premium.

A person will not have an interest in a controlled foreign company solely by virtue of rights over the income or assets of the company which are exercisable on the default of any person. Thus the contingent rights of banks, trade creditors, etc. to acquire some or all of the company’s assets in the event of a default would not amount to an interest in the company in advance of the default.