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HMRC internal manual

International Manual

From
HM Revenue & Customs
Updated
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How the corporate tax regime works for Controlled Foreign Companies: Intention to pursue an Acceptable Distribution Policy (‘ADP’)

Note: The ADP exemption was abolished in FA09 for accounting periods of CFCs beginning on or after 1 July 2009. This guidance only applies to APs ending on or before 30 June 2009General

At the time a return is made it may not be established whether a controlled foreign company has pursued an acceptable distribution policy. This is because the time limit for pursuing an ADP is 18 months from the end of the controlled foreign company’s accounting period (or at such later time as the Commissioners of HM Revenue & Customs may allow), while a return must be made within 12 months from the end of the United Kingdom company’s accounting period. If a United Kingdom company with a relevant interest in a controlled foreign company is of the view that the controlled foreign company is likely to pursue an ADP it should make its return on the basis that the company will satisfy the ADP. If the United Kingdom relevant interest is of the view that the controlled foreign company is not likely to pursue an ADP it should make its return on the basis that the company will not satisfy the ADP. (However, if a company wishes to err on the side of caution, there is no objection to it following the second course even though it thinks it likely that an ADP will be pursued.)

Subsequent amendments

Where the United Kingdom interest has indicated in its return that the controlled foreign company is likely to pursue an ADP and it is subsequently established that the controlled foreign company has not done so, the return for that period must be amended on the basis that an ADP was not pursued.

Where the return was completed on the basis that an ADP would not be pursued and it is subsequently established that an ADP has been pursued, the return must be amended on the basis that an ADP was pursued.

The time limit for making an amendment is 30 days from the end of the period allowed under ICTA88/SCH25/PARA2 for paying the dividend to a United Kingdom resident.

The amendment may be made under FA98/SCH18/PARA15 notwithstanding that this section has a 12 months time limit and the end of the 30 days may fall outside that limit (ICTA88/S754A(8)). This is only likely to arise in practice where the Commissioners have extended the 18 month time limit under ICTA88/SCH25/PARA2(1)(b).

Unless it has been previously established whether or not a controlled foreign company will pursue an ADP, it shall be taken to be established as soon as the 18 months after the controlled foreign company’s accounting period has elapsed or at the end of any longer period that the Commissioners have allowed under ICTA88/SCH25/PARA2(1)(b).

See paragraph INTM256680 for penalties that may apply where an ADP amendment is not made within the above time limit.