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HMRC internal manual

International Manual

How the corporate tax regime works for Controlled Foreign Companies: Clearances: general

Background to the current system

The role of HMRC in providing advice and/or clearances on various aspects of the controlled foreign company legislation is recognised as an important practical component of the operation of the system.

What the system aims to do

The system aims to provide certainty to United Kingdom companies as to the application of the controlled foreign company legislation to a particular set of facts, and enable areas of doubt or difficulty to be resolved before the companies are required to complete the controlled foreign company supplementary page to their self assessment tax returns.

The clearance procedure allows both flexibility and speed of operation. HMRC will work to a 28 day turnaround target from receipt of the application provided all relevant information is included. If there is a particular need for a clearance decision to be given by a specific date, companies can specify this in their applications. HMRC will do its best to meet reasonable requests but more time may sometimes be needed where for instance particular additional expertise is necessary.

A clearance will state the terms on which it is given, and will normally apply indefinitely, provided the relevant underlying facts and legislation remain unchanged. HMRC will be bound by clearances when all the relevant facts are accurately given. Where a clearance cannot be given, HMRC will state the reasons. If a company disagrees with HMRC view on a clearance, it will be free to make its self assessment on its own understanding of the law and appeal in the normal way against any amendment to the self assessment which HMRC may make. A standard clearance letter is reproduced at INTM256740.

The continued application of the clearance may be reviewed by the local Officer on occasions to ensure that the facts and circumstances remain the same. However, companies should notify their inspector if there have been any material changes to the facts or projections in the original application for clearance which may have a bearing on the continued existence of the clearance. Failure to do so may render the United Kingdom interest holder liable for penalties under FA07/SCH24/PARA1 if a return is submitted which relies on a clearance which, because of significant changes in the facts or the law, is no longer appropriate.

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When and to whom the system applies

The clearance procedure commenced in respect of applications submitted after 1 January 1999. All United Kingdom interest holders are entitled to request clearance in respect of potential controlled foreign companies. Where there is more than one United Kingdom interest holder, a clearance application may be made by one on behalf of the others. Clearances for companies in which venture capital limited partnerships (see INTM255410) hold shares may be made by the manager of the partnership.

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Issues on which clearance may be requested

United Kingdom companies may request clearance as to the way any area of the controlled foreign company legislation applies in respect of a particular case. Clearance will not be available on matters that are outside the controlled foreign company legislation, such as the computation of chargeable profits.