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HMRC internal manual

International Manual

HM Revenue & Customs
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How the corporate tax regime works for Controlled Foreign Companies: How to complete the Controlled Foreign Company supplementary pages

The following information is required on the supplementary page

  1. Name of controlled foreign company

The Roman alphabet should be used.

  1. Territory of residence

The territory of residence required is the territory determined under ICTA88/S749 (INTM254400). The company will also need to indicate here whether an election has been made under ICTA88/S749(3)(d). If the company is conclusively presumed to be resident in a territory in which it is subject to a lower level of taxation under ICTA88/S749(5) then this should be indicated by the entry ‘749(5)’.

  1. Exemptions

Exemptions other than the Excluded Countries Regulations should be entered here. These are:

a. The Acceptable Distribution Policy INTM254600
b. The Exempt Activities Test INTM254800
c. De minimis INTM255100
d. The Motive Test INTM255150

Where it is considered that more than one of the above exemptions apply, then the company is not required to list them all (though it may do so if it wishes). Any of the exemptions may therefore be mentioned where they are appropriate and failure to include all applicable exemptions will not prejudice a later claim in respect of any of them.

This applies as much to the motive test as to any of the other exemptions. However, companies should bear in mind that the motive exemption (INTM255150) was designed to be a “sweeping up” provision to enable exemption to be given to those Controlled Foreign Companies that do not satisfy the terms of the other exemptions but which, nonetheless, do not mainly exist to avoid UK tax. As such, it is designed largely for exceptional circumstances, to be applied where the other tests do not apply. Accordingly, it is unlike the other exemptions. Whilst they are wholly objective tests, the motive exemption involves a largely subjective test.

Whilst, like all the other exemptions, it will be a question of fact whether, for example, a company exists mainly to reduce UK tax (as that concept is defined by ICTA88/SCH25/ PARA19), proving (or disproving) subjective intentions is rarely straightforward. Extensive enquiries may be necessary to establish the facts that inform consideration of the motives for a particular transaction involving the Controlled Foreign Company, or for its existence in that accounting period. These enquiries may well be more burdensome than those required to establish or verify one of the objective exemptions.

In establishing appropriate risk assessment criteria for the examination of this aspect of the Company Tax Return, HMRC will take these factors into account and thus a claim to exemption by the motive test is likely to be subject to closer scrutiny than claims for the other exemptions.

If an exemption is due, there is no need to complete any of the subsequent columns in respect of that controlled foreign company. (See INTM256620 regarding companies that are not controlled foreign companies but which may be included in a return.)

  1. The measure of apportionment

In most cases this will be the percentage of ordinary shares held directly or indirectly in the controlled foreign company (INTM255930 to INTM255960). Where relevant interests are held directly or indirectly other than through ordinary shares the appropriate percentage should be calculated on a just and reasonable basis (INTM255970 to INTM255980). (The percentage should not include the interest of any connected or associated person (INTM254410) under ICTA88/S747(5)(b) although that figure should be taken into account in ascertaining whether the interest is 25% or more (see INTM255880)

  1. Chargeable profits

These are the chargeable profits that are apportioned to the company making the return. The figure is after reliefs available in ICTA88/SCH24 (INTM255690 to INTM255800).

  1. Tax on chargeable profits.

The tax on chargeable profits is the sum that is apportionable under ICTA88/s747(4)(a) to the company making the return (INTM255860). It is the figure before reliefs are given under ICTA88/SCH26/PARA1 or relief for unrelieved surplus advance corporation tax under regulations.

  1. Creditable Tax.

The figure to be entered here is the figure of creditable tax (INTM255830) on the chargeable profits shown at box E.

  1. Reliefs in terms of tax.

Reliefs available under paragraph 1 ICTA88/SCH26 (INTM256110 to INTM256200) are to be shown here in terms of tax. The total of these reliefs will need to be carried over to the main body of the return.

  1. Unrelieved surplus ACT as restricted

Unrelieved surplus ACT under regulations which is available against the ICTA88/S747 tax should be shown here. The total of entries here will need to be carried over to the main body of the return.

  1. ICTA88/S747 tax due

In this column the ICTA88/S747 tax chargeable should be shown. It will be the sum of the figure in box E less the sum of the figures in boxes G to I. The net figure is carried over to the return.