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HMRC internal manual

International Manual

How the corporate tax regime works for Controlled Foreign Companies: HMRC enquiries: Commissioners’ sanction


Under CT self assessment enquiries into controlled foreign company liabilities are governed, like other enquiries, by FA98/SCH18 Part IV. Such enquiries are ended by issue of a closure notice informing the company that enquiries are completed and stating conclusions. ICTA88/S754B sets out special rules which apply before a closure notice can be issued in respect of controlled foreign company tax. Where the closure notice concludes that the figure for controlled foreign company tax should be amended the Commissioners of HM Revenue & Customs’ (the ‘Commissioners’) sanction is required unless:

  • the chargeable profits or creditable tax have been agreed with the company, and
  • that agreement is in force when the closure notice is given, and
  • the agreement covers the amended figure.

An agreement is in force if it has been made or confirmed in writing and 30 days have passed since the agreement was made (or, in the case of an oral agreement, since the agreement was confirmed in writing) and the company has not served a notice on an HMRC Officer of stating that it is repudiating or resiling from the agreement.

The purpose of the Commissioners’ sanction is to give consistency and oversight in the operation of the controlled foreign company legislation similar to that provided by the requirement in the pre-self assessment legislation that the controlled foreign company rules only apply when the Commissioners so direct.

Where agreement cannot be reached or it is intended to issue a discovery assessment, the Commissioners’ sanction should be obtained and issued to the interest holders on whom the closure notice or assessment is to be subsequently issued. A separate sanction is required for each interest holder on whom a contentious charge is to be raised. It is no longer necessary to issue a sanction to every potential holder of an interest within a group, only the one on whom a charge will be raised. If UK ownership includes different companies in a group, each company will require a sanction. In addition, where a chargeable interest is held by a UK third party, you should liaise with the Officer dealing with that company or group to ensure the appropriate number of sanctions are obtained.

An application for the Commissioners’ sanction should be made to CSTD Business, Assets & International Base Protection Policy team and should include the following items:

  1. Name of interest holder
  2. Interest held
  3. Other UK interest holders
  4. Name of Controlled Foreign Company
  5. Accounting periods of the Controlled Foreign Company and chargeable interest holders
  6. Where does the Controlled Foreign Company claim to be resident
  7. Profits of Controlled Foreign Company (under UK rules)
  8. Tax paid by Controlled Foreign Company.
  9. Exemptions:
* Objective: for each of the exemptions in ICTA88/S747(1) please indicate why the company does not qualify. For contentious areas please set out the company position and your own.
* Motive: set out why you believe the Motive exemption is not available.
  1. Previous agreements: if the Controlled Foreign Company has been the subject of a previous clearance which is no longer valid please give details of that agreement and what has now changed.

  2. Computational assumptions made in arriving at equivalent UK profits (indicating contentious items).

    • Deemed reliefs claimed [ICTA88/SCH24/PARA4(1)] plus any reduction claimed by the majority interest holders under ICTA88/SCH24/PARA4(2)
    • Capital allowances [ICTA88/SCH24/PARA11(3)]
    • Computed losses b/fwd from previous years [as claimed by majority interest holders under ICTA88/SCH24/PARA9(4)]
  3. Basis of apportionment used.

  4. Creditable tax available

  5. Other relief available against the charge (group relief, losses etc)