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HMRC internal manual

International Manual

HM Revenue & Customs
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Controlled Foreign Companies: apportionment of chargeable profits and creditable tax: Calculation of interest based on ordinary shares


Where the interest by ordinary shares in the controlled foreign company is held indirectly, the interest of each higher company in a chain is computed on the basis of the percentage of total ordinary shareholding that each company holds in the company that is linked by ordinary shares to the controlled foreign company. Where the relevant interest is not held wholly via the same intermediate company each shareholding percentage will need to be computed separately and amalgamated.

The formula that produces the appropriate percentage of the relevant interest is:

P x S

P is a product of fractional interests. The first fractional interest is the fractional interest the relevant interest holds directly in the shares of a share-linked company. A share-linked company is a company which is linked by shares (directly or indirectly) to the controlled foreign company. The second fractional interest will be the interest that second company holds directly in the next share-linked company and so on. The product will not however include the fraction that the lowest share-linked company (that is to say the company that holds shares directly in the controlled foreign company) holds in the controlled foreign company.

S represents the percentage of ordinary shares in the controlled foreign company held by the company which holds ordinary shares directly in the controlled foreign company and which links the person with the relevant interest to the controlled foreign company (the lowest share-linked company).