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(a) the CFC has chargeable profits for the accounting period, and

(b) none of the exemptions set out in Chapters 10 to 14 applies for the accounting period.

(3) A CFC’s chargeable profits for an accounting period are its assumed taxable total profits for the accounting period determined on the basis—

(a) that the CFC’s assumed total profits for the accounting period are limited to only so much of those profits as pass through the CFC charge gateway, and

(b) that amounts are to be relieved against the assumed total profits at step 2 in section 4(2) of CTA 2010 only so far as it is

just and reasonable for them to be so relieved having regard to paragraph (a).

(4) “The CFC charge gateway” is explained in section 371BB.

(5) Subsection (3) is subject to section 371SB (7) and (8) (which relates to settlement income included in a CFC’s chargeable profits).

371BB The CFC charge gateway

(1) Take the following steps to determine the extent to which a CFC’s assumed total profits for an accounting period pass through the CFC charge gateway.

Step 1

In accordance with Chapter 3, determine which (if any) of Chapters 4 to 8 apply for the accounting period.

If none of those Chapters applies, none of the CFC’s assumed total profits pass through the CFC charge gateway and step 2 is not to be taken.

Step 2

Determine the extent to which the CFC’s assumed total profits fall within any of the Chapters which applies for the accounting period.

The CFC’s assumed total profits pass through the CFC charge gateway so far as they fall within any of those Chapters.

(2) Subsection (1) is subject to—

(a) Chapter 9 (exemptions for profits from qualifying loan relationships), and

(b) section 371JE (which provides for adjustments of profits which would otherwise pass through the CFC charge gateway linked to the exemption set out in Chapter 10).

371BC Charging the CFC charge

(1) Take the following steps if, as provided for by section 371BA (2), this section applies in relation to a CFC’s accounting period.

Step 1

In accordance with Chapter 15, determine the persons (“the relevant persons”) who have relevant interests in the CFC at any time during the accounting period.

If none of the relevant persons is a company which meets the UK residence condition (see subsection (2)), the CFC charge is not charged in relation to the accounting period and no further steps are to be taken.

Step 2

In accordance with Chapter 16, determine the CFC’s creditable tax for the accounting period.

Step 3

In accordance with Chapter 17, apportion the CFC’s chargeable profits and creditable tax among the relevant persons.

Step 4

Take each relevant person which is a company meeting the UK residence condition and, in accordance with section 371BD, determine if the company is a chargeable company.

If there are no chargeable companies, the CFC charge is not charged in relation to the accounting period and step 5 is not to be taken.

Step 5

The CFC charge is charged on each chargeable company as follows.

A sum equal to—

is charged on the chargeable company as if it were an amount of corporation tax charged on the company for the relevant corporation tax accounting period.

This step is subject to section 371BH.

(2) A company meets the UK residence condition if it is UK resident at a time during the accounting period when it has a relevant interest in the CFC.

(3) For the purpose of taking step 5 in subsection (1) in relation to a chargeable company (“CC”)—

371BD Chargeable companies

(1) A company (“C”) which meets the UK residence condition is a chargeable company for the purposes of step 4 in section 371BC (1) if the total of the following percentages is at least 25%—

(a) the percentage of the CFC’s chargeable profits apportioned to C at step 3 in section 371BC (1), and

(b) the percentages (if any) of those profits which are apportioned at that step to relevant persons who, at any time during the accounting period, are connected or associated with C.

(2) Subsection (1) is subject to sections 371BE to 371BG.

371BE Companies which are managers of offshore funds etc

(1) A company (“C”) is not a chargeable company for the purposes of step 4 in section 371BC (1) if—

(a) the CFC is an offshore fund (as defined in section 355),

(b) the genuine diversity of ownership condition set out in regulation 75 of the Offshore Funds (Tax) Regulations 2009 (S.I. 2009/3001S.I. 2009/3001) is met in relation to the fund,

(c) C meets the fund management condition, and

(d) apart from this section, a sum of no more than £500,000 would be charged on C as a chargeable company at step 5 in section 371BC (1).

(2) In applying regulation 75 of the 2009 Regulations for the purposes of subsection (1)(b), the reference in paragraph (1) to the period of account is to be read as a reference to the accounting period.

(3) C meets the fund management condition if at all times during the accounting period when C has relevant interests in the offshore fund—

(a) the assets of the offshore fund are managed by C or a person connected with C,

(b) C or the person connected with C receives out of those assets fees for managing those assets, and

(c) C holds its relevant interests only or mainly for the purpose of attracting participants (as defined in section 362) to the fund who are not connected with C.

(4) If the accounting period is less than 12 months, the amount specified in subsection (1)(d) is to be reduced proportionately.

371BF Companies which are participants in offshore funds

(1) A company (“C”) is not a chargeable company for the purposes of step 4 in section 371BC (1) if—

(a) the CFC is an offshore fund (as defined in section 355),

(b) at the relevant time and at all subsequent relevant times, C reasonably believes that the requirement of section 371BD (1)will not be met in relation to it, and

(c) the meeting of that requirement in relation to C is in no way attributable to any step—

(i) which was taken by C or any person connected or associated with C, and

(ii) which, at the time it was taken, could reasonably have been expected to cause that requirement to be met.

(2) “The relevant time” means—

(a) the beginning of the accounting period, or

(b) if C has no relevant interests in the offshore fund at the beginning of the accounting period, the time when C first has a relevant interest during the accounting period.

(3) “Subsequent relevant time” means any time during the accounting period at which there is an increase or some other change in the relevant interests in the offshore fund which C has.

371BG Companies holding shares as trading assets etc

(1) A company (“C”) is not a chargeable company for the purposes of step 4 in section 371BC (1) if—

(a) C has its relevant interests in the CFC by virtue only of its holding, directly or indirectly, shares in the CFC,

(b) any increase in the value of the shares held by C which occurs during the accounting period is (or would be) income, or brought into account in determining any income, of C for corporation tax purposes, and

(c) any dividend or other distribution received by C from the CFC during the accounting period is (or would be) income, or brought into account in determining any income, of C for corporation tax purposes.

(2) Subsection (3) applies if—

(a) C has relevant interests in the CFC by virtue of section 371OB (3) or (4),

(b) the CFC is an offshore fund (as defined in section 355) which does not meet the qualifying investments test in section 493 of CTA 2009, and

(c) in consequence of the offshore fund not meeting that test, the requirements of subsection (1)(b) and (c) are not met.

(3) The requirements of subsection (1)(b) and (c) are to be taken to be met.

371BH Companies carrying on BLAGAB

(1) Step 5 in section 371BC (1) is to be taken in relation to a chargeable company (“CC”) on the basis set out in subsection (2) if—

(a) CC carries on basic life assurance and general annuity business during the relevant corporation tax accounting period,

(b) the assets which represent CC’s relevant interests in the CFC are (to any extent) assets held by CC for the purposes of CC’s long-term business, and

(c) the I - E rules apply to CC for the relevant corporation tax accounting period.

(2) That basis is—

(a) in paragraph (a), the reference to the appropriate rate is to be read as a reference to—

(i) the policyholders’ rate of tax under section 102 of FA 2012 applicable to the I - E profit of CC for the relevant corporation tax accounting period, or

(ii) if there is more than one such rate, the average rate over the whole of the relevant corporation tax accounting period,

(b) paragraph (a) is to apply only in relation to the policyholders’ share of the BLAGAB component of the CFC’s chargeable profits (“the apportioned profit”) apportioned to CC at step 3 in section 371BC (1), and

(c) for the purposes of paragraph (b), the CFC’s creditable tax apportioned to CC is to be reduced so as to be equal to the

proportion which the policyholders’ share of the BLAGAB component of the apportioned profit bears to the whole of the apportioned profit.

(3) Take the following steps to determine the “BLAGAB component” of the apportioned profit.

Step 1

Assume that the apportioned profit is income falling within section 74(1)(j) of FA 2012 paid to CC at the end of the CFC’s accounting period.

Step 2

Calculate how much of that income would be referable, in accordance with Chapter 4 of Part 2 of FA 2012, to CC’s basic life assurance and general annuity business.

That amount is the “BLAGAB component” of the apportioned profit.

(4) The “policyholders’ share” of the BLAGAB component of the apportioned profit is equal to the policyholders’ share of the I - E profit for the relevant corporation tax accounting period as determined in accordance with the rules contained in Chapter 5 of Part 2 of FA 2012.

Chapter 3

The CFC charge gateway: determining which (if any) of Chapters 4 to 8 applies

371CA Does Chapter 4 apply?

(1) Chapter 4 (profits attributable to UK activities) applies for a CFC’s accounting period unless condition A, B, C or D is met.

(2) Condition A is that, at no time during the accounting period, does the CFC hold assets or bear risks under an arrangement to which both subsections (3) and (4) apply.

(3) This subsection applies to an arrangement if—

(a) the main purpose, or one of the main purposes, of the arrangement is to reduce or eliminate any liability of any person to tax or duty imposed under the law of the United Kingdom, and

(b) in consequence of the arrangement, at any time the CFC expects its business to be more profitable than it would otherwise be (other than negligibly so).

(4) This subsection applies to an arrangement if—

(a) there is an expectation that, as a consequence of the arrangement, one or more persons will have liabilities to tax or duty imposed under the law of any territory reduced or eliminated, and

(b) it is reasonable to suppose that, but for that expectation, the arrangement would not have been made.

(5) Condition B is that, at no time during the accounting period, does the CFC have any UK managed assets or bear any UK managed risks (see subsection (9)).

(6) Condition C is that, at all times during the accounting period, the CFC has itself the capability to ensure that the CFC’s business would be commercially effective were—

(a) the UK managed assets of the CFC, and

(b) the UK managed risks borne by the CFC,

to stop being UK managed.

(7) In subsection (6) the reference to the capability of the CFC includes (in particular) its capability to select persons not connected with it to provide it with goods or services and to manage the transactions it has with persons not connected with it.

(8) In determining if the requirements of subsection (6) are met at any time (“the relevant time”) during the accounting period, assume—

(a) that the CFC would continue to carry on the same business as it is actually carrying on at the relevant time, and

(b) that no relevant UK activities (see subsection (10)) by which any asset or risk was UK managed would be replaced—

(i) by activities carried on by any person connected with the CFC at any time, or

(ii) in any other way which relies to any extent upon the CFC receiving (directly or indirectly) resources or other assistance from a person connected with it at any time.

(9) An asset or risk is “UK managed” if—

(a) the acquisition, creation, development or exploitation of the asset, or

(b) the taking on, or bearing, of the risk,

is managed or controlled to any significant extent by way of relevant UK activities.

(10) “Relevant UK activities” means activities carried on in the United Kingdom—

(a) by the CFC, otherwise than through a UK permanent establishment, or

(b) by companies connected with the CFC under arrangements which would not, it is reasonable to suppose, be entered into by companies not connected with each other.

(11) Condition D is that the CFC’s assumed total profits consist only of one or both of the following—

(a) non-trading finance profits;

(b) property business profits.

371CB Does Chapter 5 apply?

(1) Subject to sections 371CC and 371CD, Chapter 5 (non-trading finance profits) applies for a CFC’s accounting period if (and only if) the CFC has non-trading finance profits.

(2) In this section and Chapter 5 references to the CFC’s non-trading finance profits are to those profits excluding any profits falling within subsection (3) or (4) or Chapter 8 (solo consolidation).

(3) Profits fall within this subsection so far as they arise from the investment of funds held by the CFC for the purposes of a trade—

(a) which is carried on by the CFC, and

(b) no trading profits of which pass through the CFC charge gateway for the accounting period.

(4) Profits fall within this subsection so far as they arise from the investment of funds held by the CFC for the purposes of a UK property business or overseas property business carried on by the CFC.

(5) Neither subsection (3) nor subsection (4) applies in relation to funds—

(a) held only or mainly because of a prohibition or restriction on the CFC paying dividends or making other distributions imposed under the law of the territory in which the CFC is incorporated or formed,

(b) held with a view to paying dividends or making other distributions at a time after the end of the relevant 12 month period,

(c) held with a view to acquiring shares in any company or making any capital contribution to a person,

(d) held with a view to acquiring, developing or otherwise investing in land at a time after the end of the relevant 12 month period,

(e) held only or mainly for contingencies, or

(f) held only or mainly for the purpose of reducing or eliminating a liability of any person to tax or duty imposed under the law of any territory.

(6) Subsection (5)(a) does not cover a prohibition or restriction which ceases to have effect before the end of the relevant 12 month period.

(7) “The relevant 12 month period” means the period of 12 months after the end of the accounting period.

(8) In the case of a chargeable company which makes a claim under Chapter 9, in this section and Chapter 5 references to the CFC’s non-trading finance profits are to those profits excluding also the CFC’s qualifying loan relationship profits (as defined in Chapter 9).

371CC Incidental non-trading finance profits: the 5% rule

(1) This section applies in relation to a CFC’s accounting period if one or both of the following requirements is met—

(a) the CFC has trading profits or property business profits (or both);

(b) the CFC has exempt distribution income and, at all times during the accounting period, a substantial part of its business is the holding of shares or securities in companies which are its 51% subsidiaries.

(2) Chapter 5 does not apply for the accounting period if the CFC’s non-trading finance profits are no more than 5% of the relevant amount.

(3) “The relevant amount” is—

(a) if the requirement of subsection (1)(a) is met, the total of the CFC’s trading profits and property business profits determined before deduction of interest or any tax or duty imposed under the law of any territory,

(b) if the requirement of subsection (1)(b) is met, the total of the CFC’s exempt distribution income, or

(c) if both those requirements are met, the sum of the totals given by paragraphs (a) and (b).

(4) Subsection (5) applies for the purposes of subsection (2) if—

(a) the requirement of subsection (1)(b) is met (whether or not the requirement of subsection (1)(a) is also met),

(b) at any time during the accounting period, a 51% subsidiary of the CFC (“the CFC subsidiary”) is also a CFC, and

(c) the CFC subsidiary has relevant non-trading finance profits as determined in accordance with subsection (6) or (7).

(5) The CFC subsidiary’s relevant non-trading finance profits are to be added to the CFC’s non-trading finance profits.

(6) If—

(a) the CFC subsidiary has an accounting period (“the relevant period”) which is the same as the CFC’s accounting period or otherwise falls wholly within the CFC’s accounting period, and

(b) by virtue of this section or section 371CD, Chapter 5 does not apply (in the case of the CFC subsidiary) for the relevant period,

the CFC subsidiary’s “relevant non-trading finance profits” are its non-trading finance profits for the relevant period.

(7) If—

(a) the CFC subsidiary has an accounting period (“the relevant period”) which otherwise overlaps with the CFC’s accounting period, and

(b) by virtue of this section or section 371CD, Chapter 5 does not apply (in the case of the CFC subsidiary) for the relevant period,

the CFC subsidiary’s “relevant non-trading finance profits” are a just and reasonable proportion of its non-trading finance profits for the relevant period.

(8) In this section references to the CFC’s trading profits are to those profits excluding any of them which pass through the CFC charge gateway for the accounting period.

(9) “Exempt distribution income” means any dividends or other distributions which are not brought into account in determining the CFC’s assumed total profits on the basis that they would be exempt for the purposes of Part 9A of CTA 2009 (company distributions).

(10) This section needs to be read with section 371CD.

371CD Incidental non-trading finance profits: the further 5% rule

(1) This section applies in relation to a CFC’s accounting period if—

(a) the requirements of section 371CC (1)(a) and (b) are both met, but

(b) the CFC’s non-trading finance profits (as added to under section 371CC (5) if applicable) are more than 5% of the relevant amount for the purposes of section 371CC (2).

(2) Chapter 5 does not apply for the accounting period if the CFC’s adjusted non-trading finance profits are no more than 5% of the total of the CFC’s exempt distribution income (as defined in section 371CC (9)).

(3) The CFC’s “adjusted non-trading finance profits” are its non-trading finance profits excluding any profits falling within section 371CB (3)or (4).

(4) Subsection (5) applies if any CFC subsidiary’s relevant non-trading finance profits are added under section 371CC (5) to the CFC’s non-trading finance profits for the purposes of section 371CC (2).

(5) The CFC subsidiary’s relevant non-trading finance profits are also to be added to the CFC’s adjusted non-trading finance profits for the purposes of subsection (2) above.

371CE Does Chapter 6 apply?

(1) Subject to what follows, Chapter 6 (trading finance profits) applies for a CFC’s accounting period if (and only if)—

(a) the CFC has trading finance profits, and

(b) at any time during the accounting period, the CFC has funds or other assets which derive (directly or indirectly) from UK connected capital contributions.

(2) The CFC’s trading finance profits are to be treated for the purposes of this Part as if they were non-trading finance profits (and, accordingly, Chapter 6 cannot apply for the accounting period) if—

(a) the CFC is a group treasury company in the accounting period, and

(b) a notice is given to an officer of Revenue and Customs requesting that the CFC’s trading finance profits be treated as if they were non-trading finance profits.

(3) Section 316(5) to (11) (group treasury companies) applies for the purpose of determining if a CFC is a “group treasury company” as if references to the relevant period were to the accounting period.

(4) A notice under subsection (2)(b)

(a) may be given only by a company or companies determined under subsection (5) or (6), and

(b) must be given—

(i) within 20 months after the end of the accounting period, or

(ii) within such longer period as an officer of Revenue and Customs may allow.

(5) A company may give a notice if—

(a) the company would be a chargeable company were section 371BC (charging the CFC charge) to apply in relation to the accounting period, and

(b) the percentage of the CFC’s chargeable profits which would be apportioned to the company at step 3 in section 371BC (1)would represent more than half of X%.

(6) Two or more companies may together give a notice if—

(a) the companies would all be chargeable companies were section 371BC (charging the CFC charge) to apply in relation to the accounting period, and

(b) the percentage of the CFC’s chargeable profits which would be apportioned to the companies, taken together, at step 3 in section 371BC (1) would represent more than half of X%.

(7) In subsections (5) and (6) “X%” means the total percentage of the CFC’s chargeable profits which would be apportioned to chargeable companies at step 3 in section 371BC (1) were section 371BC(charging the CFC charge) to apply in relation to the accounting period.

371CF Does Chapter 7 apply?

(1) Chapter 7 (captive insurance business) applies for a CFC’s accounting period if (and only if)—

(a) at any time during the accounting period, the main part of the CFC’s business is insurance business, and

(b) the CFC’s assumed total profits include amounts falling within subsection (2).

(2) An amount falls within this subsection if it derives (directly or indirectly) from—

(a) a contract of insurance which is entered into with—

(i) a UK resident company connected with the CFC, or

(ii) a non-UK resident company connected with the CFC acting through a UK permanent establishment, or

(b) a contract of insurance which—

(i) is entered into with a UK resident person, and

(ii) is linked (directly or indirectly) to the provision of goods or services to the UK resident person (excluding services provided as part of insurance business).

371CG Does Chapter 8 apply?

(1) Chapter 8 (solo consolidation) applies for a CFC’s accounting period if (and only if) condition A or B is met.

(2) Condition A is that, at any time during the accounting period—

(a) the CFC is a subsidiary undertaking which is the subject of a solo consolidation waiver under section BIPRU 2.1 of the FSA Handbook, and

(b) the CFC’s parent undertaking in relation to that waiver is a UK resident company.

(3) Condition B is that, at any time during the accounting period—

(a) the CFC is controlled (either alone or with other persons) by a UK resident bank which holds shares in the CFC,

(b) the UK resident bank must meet requirements of the FSA Handbook in relation to its capital,

(c) any fall in the value of the shares held in the CFC would be (wholly or mainly) ignored for the purpose of determining if the UK resident bank meets those requirements of the FSA Handbook, and

(d) the main purpose, or one of the main purposes, of the UK resident bank in holding the shares in the CFC is to obtain a tax advantage for itself or any company connected with it.

(4) In this section—

(5) The Treasury may by regulations amend this Chapter or Chapter 8 as they consider appropriate to take account of—

(a) any changes to the FSA Handbook, or

(b) any relevant document published by the Financial Services Authority from time to time.

(6) “Relevant document” means—

(a) a document which replaces the FSA Handbook, or

(b) a document which changes or replaces a document falling within paragraph (a) or a document which is a relevant document by virtue of this paragraph.

Chapter 4

The CFC charge gateway: profits attributable to UK activities

371DA Introduction to Chapter

(1) Take the steps set out in section 371DB (1) to determine the CFC’s profits falling within this Chapter for the purposes of step 2 in section 371BB (1) (the CFC charge gateway).

(2) In this Chapter references to the CFC’s assumed total profits are to those profits excluding its non-trading finance profits and property business profits (if any).

(3) For the purposes of this Chapter—

(a) “the OECD Report” means the Report on the Attribution of Profits to Permanent Establishments of the Organisation for Economic Co-operation and Development (“OECD”) dated 22 July 2010,

(b) terms used which are also used in the OECD Report have the same meaning as they have in the OECD Report,

(c) “the CFC group” means the CFC taken together with the companies with which it is connected as those companies may change from time to time,

(d) “the provisional Chapter 4 profits” has the meaning given at step 7 in section 371DB (1),

(e) “the relevant assets and risks” has the meaning given at step 1 in section 371DB (1), subject to any exclusions at step 2 or 6,

(f) “SPF” means a significant people function or a key entrepreneurial risk-taking function,

(g) an SPF is a “UK SPF” so far as the SPF is carried out in the United Kingdom—

(i) by the CFC, otherwise than through a UK permanent establishment, or

(ii) by a company connected with the CFC, and

(h) an SPF is a “non-UK SPF” so far as it is not a UK SPF.

(4) The Treasury may by regulations amend this Chapter as they consider appropriate to take account of any relevant document published by OECD from time to time.

(5) “Relevant document” means—

(a) a document which replaces, updates or supplements the report mentioned in subsection (3)(a), or

(b) a document which replaces, updates or supplements a document falling within paragraph (a) or a document which is a relevant document by virtue of this paragraph.

371DB The steps

(1) Here are the steps referred to in section 371DA (1).

The steps are to be taken in accordance with the principles set out in the OECD Report (so far as relevant).

The steps are to be taken in accordance with the principles set out in the OECD Report (so far as relevant).

Step 1

Identify the assets which the CFC has or has had, and the risks which the CFC bears or has borne, and from which amounts included in the CFC’s assumed total profits have arisen.

The identified assets and risks are called “the relevant assets and risks”.

Step 2

Exclude from the relevant assets and risks any asset or risk to which subsection (2) applies (subject to subsections (3) and (4)).

Step 3

Identify the SPFs carried out by the CFC group which are relevant to—

For this purpose, assume that the CFC group is a single company.

Step 4

Determine the extent to which the SPFs identified at step 3 are UK SPFs and the extent to which they are non-UK SPFs.

If none of the SPFs is a UK SPF to any extent, then no profits fall within this Chapter and no further steps are to be taken.

Step 5

Assume that the UK SPFs determined at step 4 are carried out by a permanent establishment which the CFC has in the United Kingdom and, accordingly, determine the extent to which the assets and risks included in the relevant assets and risks would be attributed to the permanent establishment.

For this purpose, assume that the non-UK SPFs determined at step 4 are all carried out by the CFC itself (if that is not otherwise the case).

Step 6

Exclude from the relevant assets and risks any asset or risk, or any assets or risks taken together, to which section 371DC applies.

Step 7

Re-determine the CFC’s assumed total profits on the basis that the CFC—

so far as they would be attributed to the permanent establishment mentioned at step 5.

“The provisional Chapter 4 profits” are the CFC’s assumed total profits so far as they are left out of the re-determined profits.

Step 8

Exclude from the provisional Chapter 4 profits any amounts which are required to be excluded by section 371DD, 371DE or 371DF.

The remaining profits (if any) fall within this Chapter.

(2) This subsection applies to an asset or risk if the CFC’s assumed total profits are only negligibly higher than what they would be if the CFC—

(a) did not hold, or had not held, the asset to any extent at all, or

(b) did not bear, or had not borne, the risk to any extent at all.

(3) The total number of assets and risks which may be excluded at step 2 in subsection (1) is limited as follows.

(4) As well as applying to each asset and risk separately, subsection (2)must also apply to all the assets and risks included in the total number taken together.

371DC Exclusion: UK activities a minority of total activities

(1) For the purposes of step 6 in section 371DB (1), this section applies to an asset or risk included in the relevant assets and risks if amount A is no more than 50% of amount B.

(2) Amount A is the total of—

(a) the gross amounts (that is, the amounts before deduction of expenses or transfers to or from reserves) of the CFC’s income which would not have become receivable during the accounting period had the CFC—

(i) not held the asset, or

(ii) not borne the risk,

so far as it would be attributed to the permanent establishment mentioned at step 5 in section 371DB (1), and

(b) the additional expenses which the CFC would have incurred during the accounting period had the CFC—

(i) not held the asset, or

(ii) not borne the risk,

so far as it would be so attributed.

(3) Amount B is the total of—

(a) the gross amounts (that is, the amounts before deduction of expenses or transfers to or from reserves) of the CFC’s income which would not have become receivable during the accounting period had the CFC—

(i) not held the asset to any extent at all, or

(ii) not borne the risk to any extent at all, and

(b) the additional expenses which the CFC would have incurred during the accounting period had the CFC—

(i) not held the asset to any extent at all, or

(ii) not borne the risk to any extent at all.

(4) Subsection (5) applies if it is not reasonably practicable to separate a number of assets or risks included in the relevant assets and risks for the purpose of determining amounts A and B in relation to each of those assets or risks separately.

(5) In subsections (1) to (3) references to an asset or risk are to be read as references to those assets or risks taken together.

371DD Exclusion: economic value

(1) Subsection (2) applies if—

(a) an asset or risk is included in the relevant assets and risks,

(b) the SPFs which are relevant to the economic ownership of the asset, or the assumption and management of the risk, are wholly or partly UK SPFs as determined at step 4 in section 371DB (1), and

(c) as a result of that determination, an amount is included in the provisional Chapter 4 profits.

(2) The amount is to be excluded from the provisional Chapter 4 profits if—

(a) the net economic value to the CFC group which results from the holding of the asset, or the bearing of the risk, exceeds what that value would have been had the asset been held, or the risk been borne, solely by UK resident companies connected with the CFC, and

(b) the relevant non-tax value is a substantial proportion of the excess value mentioned in paragraph (a).

(3) “Net economic value” does not include any value which derives (directly or indirectly) from the reduction or elimination of any liability of any person to tax or duty imposed under the law of any territory outside the United Kingdom.

(4) “The relevant non-tax value” is the excess value mentioned in subsection (2)(a) so far as it does not derive (directly or indirectly) from the reduction or elimination of any liability of any person to tax or duty imposed under the law of the United Kingdom.

(5) Subsection (6) applies if—

(a) there are SPFs which are relevant to the economic ownership of a number of assets, or the assumption and management of a number of risks, included in the relevant assets and risks, and

(b) it is not reasonably practicable to separate those assets or risks for the purpose of determining the extent to which the SPFs are relevant to the economic ownership of each of those assets, or the assumption and management of each of those risks, separately.

(6) In subsections (1) and (2) references to an asset or risk are to be read as references to those assets or risks taken together.

371DE Exclusion: independent companies’ arrangements

(1) Subsection (2) applies if—

(a) an asset or risk is included in the relevant assets and risks,

(b) the SPFs which are relevant to the economic ownership of the asset, or the assumption and management of the risk, are wholly or partly UK SPFs as determined at step 4 in section 371DB (1),

(c) as a result of that determination, an amount is included in the provisional Chapter 4 profits, and

(d) the UK SPFs are carried out by companies connected with the CFC under arrangements made between the CFC and those companies.

(2) The amount is to be excluded from the provisional Chapter 4 profits if it is reasonable to suppose that, were the SPFs which are UK SPFs not to be carried out by companies connected with the CFC, the CFC would enter into arrangements with companies not connected with the CFC which—

(a) would be structured in the same way as the arrangements mentioned in subsection (1)(d), and

(b) would, in relation to the CFC’s business, have the same commercial effect as those arrangements.

(3) Subsection (4) applies if—

(a) there are SPFs which are relevant to the economic ownership of a number of assets, or the assumption and management of a number of risks, included in the relevant assets and risks, and

(b) it is not reasonably practicable to separate those assets or risks for the purpose of determining the extent to which the SPFs are relevant to the economic ownership of each of those assets, or the assumption and management of each of those risks, separately.

(4) In subsection (1) references to an asset or risk are to be read as references to those assets or risks taken together.

371DF Exclusion: trading profits (the basic rule)

(1) All trading profits are to be excluded from the provisional Chapter 4 profits if the following conditions are met—

(a) the business premises condition (see section 371DG),

(b) the income condition (see section 371DH),

(c) the management expenditure condition (see section 371DI),

(d) the IP condition (see section 371DJ), and

(e) the export of goods condition (see section 371DK).

(2) Trading profits are also to be excluded from the provisional Chapter 4 profits in accordance with section 371DI (7) and (8) (so far as applicable).

(3) This section is subject to section 371DL (anti-avoidance).

371DG Exclusion: trading profits (business premises condition)

(1) This section applies for the purposes of section 371DF (1)(a).

(2) The business premises condition is met if, at all times during the accounting period, the CFC has in the territory in which it is resident for the accounting period premises—

(a) which are, or are intended to be, occupied and used with a reasonable degree of permanence, and

(b) from which the CFC’s activities in that territory are wholly or mainly carried on.

(3) “Premises” means—

(a) an office, shop, factory or other building or part of a building,

(b) a mine, an oil or gas well, a quarry or other place of extraction of natural resources, or

(c) a building site or the site of a construction or installation project, but only if the building work or project has a duration of at least 12 months.

371DH Exclusion: trading profits (income condition)

(1) This section applies for the purposes of section 371DF (1)(b).

(2) The income condition is met if no more than 20% of the CFC’s relevant trading income derives (directly or indirectly) from—

(a) UK resident persons, or

(b) UK permanent establishments of non-UK resident companies.

(3) For the purposes of subsection (2) the CFC’s “relevant trading income” is its trading income, excluding any income arising from the sale in the United Kingdom of goods produced by the CFC in the territory in which it is resident for the accounting period.

(4) Subsection (5) applies instead of subsection (2) if, at any time during the accounting period, the CFC’s main business is banking business in relation to which the CFC is regulated in the territory in which it is resident for the accounting period.

(5) The income condition is met if the CFC’s relevant UK trading income is no more than 10% of the CFC’s trading income.

(6) The CFC’s “relevant UK trading income” is its trading income so far as it derives (directly or indirectly) from—

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