Finance (No. 4) Bill (HC Bill 325)

(6) A creditor relationship of the CFC cannot be a qualifying loan relationship if—

(a) the loan which is the subject of the creditor relationship is made to any extent out of funds received by the CFC (directly or indirectly) from a relevant UK connected company other than by way of a loan, or

(b) the creditor relationship is connected (directly or indirectly) to an arrangement which gives rise to a deduction in the calculation of the profits of a trade of a relevant UK connected

company (apart from the ultimate debtor) for the purposes of Part 3 of CTA 2009 (trading income).

(7) In subsection (6) “relevant UK connected company” means a UK resident company connected with the CFC, the main business of which is banking business or insurance business.

(8) A creditor relationship of the CFC cannot be a qualifying loan relationship if—

(a) the CFC receives relevant UK funds or other assets for the purpose of funding the loan which is the subject of the CFC’s creditor relationship,

(b) the provision of the relevant UK funds or other assets is itself funded (wholly or partly and directly or indirectly) by a loan made to a UK connected company,

(c) the relevant loan is wholly or mainly used to repay wholly or partly another loan made to the ultimate debtor by a person not connected with the ultimate debtor, and

(d) the events mentioned in paragraphs (a) to (c) take place under, or are otherwise connected (directly or indirectly) with, an arrangement the main purpose, or one of the main purposes, of which is to obtain a tax advantage for any person.

(9) In subsection (8)—

(a) “relevant UK funds or other assets” and “UK connected company” have the same meaning as in section 371EC, and

(b) in paragraph (c) “the relevant loan” means—

(i) the loan which is the subject of the CFC’s creditor relationship, or

(ii) if the ultimate debtor is determined in accordance with section 371IG (4) or (5), loan B.

(10) In subsections (4)(b) and (9)(b)(ii) references to loan B do not include any part of loan B—

(a) which loan A is not made and used to fund, or

(b) in relation to which the requirement of section 371IG (3)(c) is not met.

371II Power to amend definitions

The HMRC Commissioners may by regulations amend this Chapter—

(a) so as to amend the definition of “qualifying resources” for the purposes of section 371IB, or

(b) so as to amend the definition of “qualifying loan relationship” for the purposes of this Chapter (including by way of amending the definition of “ultimate debtor”).

371IJ Claims

(1) A claim under this Chapter must be made by being included in company C’s company tax return for the relevant corporation tax accounting period (as defined in section 371BC (3)).

(2) The claim may be included in the return originally made or by amendment.

(3) A claim under this Chapter may be made, amended or withdrawn at any time up to whichever is the last of the following dates—

(a) the first anniversary of the filing date for company C’s company tax return of the relevant corporation tax accounting period under paragraph 14 of Schedule 18 to FA 1998;

(b) if notice of enquiry is given into that return under paragraph 24 of that Schedule, 30 days after the enquiry is completed;

(c) if after such an enquiry an officer of Revenue and Customs amends the return under paragraph 34(2) of that Schedule, 30 days after notice of the amendment is issued;

(d) if an appeal is brought against such an assessment, 30 days after the date on which the appeal is finally determined.

(4) A claim under this Chapter may be made, amended or withdrawn at a later time if an officer of Revenue and Customs allows it.

(5) In any event, if after a claim under this Chapter is made there is a change of circumstances affecting the tested income amount or the tested expense amount mentioned in section 371IE (2), the claim may be amended at any time within the period of 12 months after the change of circumstances for the purpose of taking account of the change of circumstances.

(6) The time limits otherwise applicable to amendment of a company tax return do not apply to an amendment to the extent that it makes, amends or withdraws a claim under this Chapter within the time allowed by or under this section.

(7) In subsection (3) references to an enquiry into a company tax return do not include an enquiry restricted to a previous amendment making, amending or withdrawing a claim under this Chapter.

(8) An enquiry is so restricted if—

(a) the scope of the enquiry is limited as mentioned in paragraph 25(2) of Schedule 18 to FA 1998, and

(b) the amendment giving rise to the enquiry consisted of the making, amending or withdrawing of a claim under this Chapter.

Chapter 10

The exempt period exemption

371JA Introduction to Chapter

(1) This Chapter sets out an exemption called “the exempt period exemption” for the purposes of section 371BA (2)(b).

(2) Section 371JE also provides for adjustments of profits which would otherwise pass through the CFC charge gateway (see section 371BB (2)(b)) linked to the exempt period exemption.

371JB The basic rule

(1) The exempt period exemption applies for a CFC’s accounting period if—

(a) the accounting period ends during an exempt period of the CFC (see sections 371JC and 371JD),

(b) the subsequent period condition is met, and

(c) the chargeable company condition is met.

(2) The subsequent period condition is met if—

(a) the CFC does not cease to be a CFC before having at least one accounting period which begins after the end of the exempt period, and

(b) section 371BC (charging the CFC charge) does not apply in relation to the CFC’s first accounting period to begin after the end of the exempt period (see section 371BA (2)).

(3) The chargeable company condition is met if, at all times during the relevant period—

(a) the charging condition in section 371JC is met, and

(b) each company which would be a chargeable company for the purposes of that condition is an original chargeable company or is connected with an original chargeable company.

(4) In subsection (3)—

• “original chargeable company” means a company which, for the purposes of the charging condition in section 371JC, would be a chargeable company at the beginning of the exempt period, and

• “the relevant period” means the period which—

  (a)

  begins immediately after the beginning of the exempt period, and

  (b)

  ends at the end of the CFC’s first accounting period to begin after the end of the exempt period.

(5) This section is subject to section 371JF (anti-avoidance).

371JC When does an exempt period begin?

(1) An exempt period of a CFC begins at any time (“the relevant time”) during an accounting period of the CFC if—

(a) the initial condition is met,

(b) the charging condition is met at the relevant time, and

(c) at no time during the relevant preceding period (if there is one) is the charging condition met.

(2) The initial condition is met if—

(a) immediately before the relevant time, the company (“C”) which is the CFC is carrying on a business, or

(b) if the relevant time is the time at which C is incorporated or formed, C is formed or incorporated by one or more persons for the purpose of controlling one or more companies in circumstances where it is expected that an exempt period will begin in relation to one or more of those companies when C begins to control the company or companies.

(3) To determine if the charging condition is met at any time, assume—

(a) that the company which is the CFC is a CFC at the time in question if that is not otherwise the case,

(b) that the time in question is itself an accounting period of the CFC, and

(c) that section 371BC (charging the CFC charge) applies in relation to the assumed accounting period.

(4) The charging condition is met at the time in question if, as a result of steps 1, 3 and 4 in section 371BC (1), there would be one or more chargeable companies in relation to the assumed accounting period.

(5) “The relevant preceding period” means the period of 12 months ending immediately before the relevant time, excluding any part of that period during which the company which is the CFC does not exist.

371JD How long is an exempt period?

(1) Subject to what follows, an exempt period of a CFC lasts 12 months.

(2) Subsection (3) applies if a notice is given to an officer of Revenue and Customs requesting that the length of an exempt period of a CFC be extended (or further extended).

(3) An officer of Revenue and Customs may extend (or further extend) the length of the exempt period.

(4) A notice under subsection (2) must be given no later than the end of the exempt period (as it stands at the time the notice is given).

(5) A notice under subsection (2) may be given only by a company which, at the time the notice is given, would be a chargeable company for the purposes of the charging condition in section 371JC.

371JE Adjustment of profits passing through the CFC charge gateway

(1) This section applies for a CFC’s accounting period if—

(a) the accounting period begins, but does not end, during an exempt period of the CFC, and

(b) the subsequent period condition and the chargeable company condition in section 371JB are both met.

(2) The CFC’s assumed total profits which would otherwise pass through the CFC charge gateway are to be adjusted to ensure that no profits which arise in the exempt period, as determined on a just and reasonable basis, pass through the CFC charge gateway.

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

371JF Anti-avoidance

(1) The exempt period exemption does not apply for a CFC’s accounting period (“the relevant accounting period”) if condition A or B is met.

(2) Condition A is that—

(a) an arrangement is entered into at any time,

(b) the main purpose, or one of the main purposes, of the arrangement is to secure a tax advantage for any person,

(c) the arrangement is linked to the exempt period exemption applying or being expected to apply (apart from this section)—

(i) for the relevant accounting period, or

(ii) for that period and one or more other accounting periods of the CFC, and

(d) the arrangement involves one or both of the following—

(i) the CFC holding assets which give rise to non-trading finance profits or trading finance profits of the CFC, or

(ii) the CFC holding intellectual property which gives rise to any income of the CFC.

(3) Condition B is that—

(a) an arrangement is entered into at any time,

(b) in consequence of the arrangement, the length of any accounting period of the CFC is less than 12 months, and

(c) the main purpose, or one of the main purposes, of the arrangement is to secure that the exempt period exemption applies—

(i) for the relevant accounting period, or

(ii) for that period and one or more other accounting periods of the CFC.

(4) In this section references to the exempt period exemption include references to section 371JE.

371JG Amendment of company tax returns

(1) This section applies in relation to a company’s company tax return for a corporation tax accounting period if an exempt period of a CFC falls (wholly or partly) in the corporation tax accounting period.

(2) Any amendment of the return which relates to the application (or non-application) of the exempt period exemption or section 371JE for an accounting period of the CFC may be made by the company at any time no later than 12 months after the relevant filing date.

(3) “The relevant filing date” means the date which is the filing date under paragraph 14 of Schedule 18 to FA 1998 for the company’s company tax return for its corporation tax accounting period in which ends the CFC’s first accounting period to begin after the end of the exempt period.

(4) “Corporation tax accounting period” means an accounting period for corporation tax purposes.

Chapter 11

The excluded territories exemption

371KA Introduction to Chapter

This Chapter sets out an exemption called “the excluded territories exemption” for the purposes of section 371BA (2)(b).

371KB The basic rule

(1) The excluded territories exemption applies for a CFC’s accounting period if—

(a) the CFC is resident (see section 371KC) in an excluded territory for the accounting period,

(b) the total of the following amounts is no more than the threshold amount for the accounting period (see section 371KD)—

(i) the CFC’s category A income (if any) for the accounting period (see sections 371KE and 371KF),

(ii) the CFC’s category B income (if any) for the accounting period (see section 371KG),

(iii) the CFC’s category C income (if any) for the accounting period (see section 371KH), and

(iv) the CFC’s category D income (if any) for the accounting period (see section 371KI),

(c) the IP condition is met (see section 371KJ), and

(d) the CFC is not, at any time during the accounting period, involved in an arrangement the main purpose, or one of the main purposes, of which is to obtain a tax advantage for any person.

(2) In this Chapter “excluded territory” means a territory specified as such in regulations made by the HMRC Commissioners.

(3) The HMRC Commissioners may also by regulations, in relation to CFCs resident in a specified excluded territory or to other specified cases, do one or more of the following—

(a) provide that one or both of the requirements set out in subsection (1)(b) and (c) does not have to be met in order for the excluded territories exemption to apply;

(b) modify one or both of those requirements, including by modifying any provision of this Chapter mentioned in subsection (1)(b) or (c);

(c) specify further requirements which must be met in order for the excluded territories exemption to apply.

(4) If an amount is included in more than one of the categories of income mentioned in subsection (1)(b)(i) to (iv), the amount is to be counted only once in determining if the threshold amount is exceeded.

371KC How to determine the territory in which a CFC is resident

(1) For the purposes of this Chapter the territory in which a CFC is resident for an accounting period is to be determined in accordance with this section; and in this Chapter “the CFC’s territory” means that territory as so determined.

(2) The CFC is taken to be resident in the territory determined in accordance with section 371TA.

(3) But section 371TA (1)(b) is to be applied only if, at all times during the accounting period, the CFC or persons with interests in the CFC are liable under the law of the territory in question to tax on the CFC’s income.

(4) If, as a result of subsection (3), no territory of residence can be determined, the excluded territories exemption cannot apply for the accounting period.

371KD What is “the threshold amount”?

(1) The threshold amount for a CFC’s accounting period is—

(a) 10% of the CFC’s accounting profits for the accounting period, or

(b) if more, £50,000.

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

(3) In this Chapter references to a CFC’s accounting profits for an accounting period are to be read ignoring section 371VD (6) and (7).

371KE Category A income: the basic rule

(1) A CFC’s category A income for an accounting period consists of any gross amounts (that is, amounts before deduction of expenses or transfers to or from reserves) of any relevant income to which subsection (3), (4) or (5) applies.

This is subject to section 371KF.

(2) “Relevant income” means any income of the CFC which—

(a) is brought into account in determining the CFC’s accounting profits for the accounting period, or

(b) is not so brought into account but arises in the accounting period.

(3) This subsection applies to any relevant income (apart from any dividend or other distribution of a company) so far as it is exempt from tax in the CFC’s territory.

(4) This subsection applies to any relevant income so far as the tax which falls to be paid in respect of the relevant income in the CFC’s territory is at a reduced rate by virtue of a provision having effect under the law of that territory the purpose of which is (wholly or mainly) to encourage (directly or indirectly) investment in that territory.

(5) This subsection applies to any relevant income if—

(a) any tax falls to be paid in respect of the relevant income in the CFC’s territory,

(b) under the law of that territory, the CFC, any person who has an interest in the CFC or any person connected with the CFC is entitled to any repayment of tax or any payment in respect of a credit for tax, and

(c) that repayment or payment—

(i) is directly or indirectly in respect of the whole or part of the tax mentioned in paragraph (a), but

(ii) is not a form of relief in respect of losses incurred by the CFC.

371KF Category A income: permanent establishments in excluded territories

(1) This section applies if—

(a) a CFC’s category A income for an accounting period would include (apart from this section) the gross amount of any relevant income which arises from the activities of a permanent establishment (“PE”) which the CFC has in a territory outside the CFC’s territory, and

(b) the territory in which PE is established is an excluded territory.

(2) The gross amount of that relevant income is to be included in the CFC’s category A income only so far as it would also have been included had the references in section 371KE (3) to (5) to the CFC’s territory instead been references to the territory in which PE is established.

371KG Category B income

(1) A CFC’s category B income for an accounting period consists of any notional interest which—

(a) is deducted from any of the CFC’s relevant income for tax purposes under the law of the CFC’s territory or any territory in which the CFC has a permanent establishment, but

(b) is not deducted in determining the CFC’s assumed taxable total profits for the accounting period.

(2) But the CFC’s category B income is not to exceed its relevant non-local income.

(3) “Notional interest” means an amount representing a notional interest expense or other financing charge calculated by reference to any of the CFC’s equity or debt.

(4) “Relevant income” has the same meaning as in section 371KE.

(5) “Relevant non-local income” means the gross amount (that is, the amount before deduction of expenses or transfers to or from reserves) of any non-trading income—

(a) which is included in the CFC’s relevant income, and

(b) which is received (directly or indirectly) from—

(i) a person resident outside the CFC’s territory, or

(ii) a permanent establishment which a person resident in the CFC’s territory (apart from the CFC itself) has in a territory outside the CFC’s territory.

371KH Category C income

A CFC’s category C income for an accounting period is the total of the following amounts—

(a) amounts included in the CFC’s accounting profits for the period which fall within section 371VD (3)(a) (whether or not those amounts would have been included in those profits apart from section 371VD (3)(a)), and

(b) amounts included in those profits by virtue only of section 371VD (3)(b)).

371KI Category D income

(1) A CFC’s category D income for an accounting period consists of the gross amounts (that is, the amounts before deduction of expenses or transfers to or from reserves) of any income which—

(a) is brought into account in determining the CFC’s accounting profits for the accounting period, and

(b) is to be included in the CFC’s category D income in accordance with subsection (3) or (4).

(2) Subsection (3) applies if—

(a) income arises from any provision made or imposed by means of an arrangement as between the CFC and any company connected with the CFC,

(b) in the CFC’s territory, the income is reduced by an amount (“the relevant amount”) for tax purposes on the basis that the income is more than what it would have been had the company connected with the CFC not been connected with the CFC, and

(c) there is not in any territory a corresponding increase for tax purposes in the income of a company connected with the CFC.

(3) The relevant amount is to be included in the CFC’s category D income.

(4) Income is to be included in the CFC’s category D income so far as the tax which falls to be paid in respect of the income in the CFC’s territory is at a reduced rate by virtue of a ruling or other decision or an arrangement made in relation to the CFC by a governmental authority in that territory.

371KJ The IP condition

(1) This section applies for the purposes of section 371KB (1)(c).

(2) The IP condition is met unless—

(a) the CFC’s assumed total profits for the accounting period include amounts arising from intellectual property held by the CFC (“the exploited IP”),

(b) all or parts of the exploited IP were—

(i) transferred (directly or indirectly) to the CFC by persons related to the CFC at times during the relevant period, or

(ii) otherwise derived (directly or indirectly) at times during that period out of or from intellectual property held at times during that period by persons related to the CFC,

(c) as a result of those transfers or other derivations, the value of the intellectual property held by those persons related to the CFC, taken together, has been significantly reduced from what it would otherwise have been, and

(d) if only parts of the exploited IP were so transferred or derived, the significance condition is met.

(3) The significance condition is met if—

(a) the parts of the exploited IP (“the UK derived IP”) which were transferred or otherwise derived as mentioned in subsection (2)(b) are, taken together, a significant part of the exploited IP, or

(b) as a result of the transfers or other derivations of the UK derived IP, the CFC’s assumed total profits for the accounting period are significantly higher than what they would otherwise have been.

(4) In relation to a non-UK resident person who is related to the CFC, in this section references to the transfer or holding of intellectual property by a person related to the CFC are limited to, as the case may be—

(a) the transfer of intellectual property which before the transfer was held by the non-UK resident person (wholly or partly) for the purposes of a permanent establishment which the person has in the United Kingdom, or

(b) the holding of intellectual property by the non-UK resident person (wholly or partly) for those purposes.

(5) “The relevant period” means the period covering the accounting period and the 6 years before the accounting period.

Chapter 12

The low profits exemption

371LA Introduction to Chapter

This Chapter sets out an exemption called “the low profits exemption” for the purposes of section 371BA (2)(b).

371LB The basic rule

(1) The low profits exemption applies for a CFC’s accounting period if subsection (2), (3), (4) or (5) applies.

(2) This subsection applies if the CFC’s accounting profits for the accounting period are no more than £50,000.

(3) This subsection applies if the CFC’s assumed taxable total profits for the accounting period are no more than £50,000.

(4) This subsection applies if—

(a) the CFC’s accounting profits for the accounting period are no more than £500,000, and

(b) the amount of those profits representing non-trading income is no more than £50,000.

(5) This subsection applies if—

(a) the CFC’s assumed taxable total profits for the accounting period are no more than £500,000, and

(b) the amount of those profits representing non-trading income is no more than £50,000.

(6) If the accounting period is less than 12 months, the amounts specified in subsections (2), (3), (4)(a) and (b) and (5)(a) and (b) are to be reduced proportionately.

371LC Anti-avoidance

(1) The low profits exemption does not apply for a CFC’s accounting period (“the relevant accounting period”) if condition A or B is met.

(2) Condition A is that—

(a) an arrangement is entered into at any time,

(b) in consequence of the arrangement, the low profits exemption would (apart from this section) apply for the relevant accounting period, and

(c) the main purpose, or one of the main purposes, of the arrangement is to secure that the low profits exemption applies—

(i) for the relevant accounting period, or

(ii) for that period and one or more other accounting periods of the CFC.

(3) Condition B is that, at any time during the relevant accounting period, the CFC’s business is, wholly or mainly, the provision of UK intermediary services.

(4) For the purposes of subsection (3) the CFC provides “UK intermediary services” if—

(a) a UK resident individual (“the service provider”) personally performs, or is under an obligation personally to perform, services in the United Kingdom for a person (“the client”), and

(b) the services are provided not under a contract directly between the service provider and the client but under an arrangement involving the CFC.

(5) The low profits exemption does not apply for a CFC’s accounting period by virtue of section 371LB (2) or (4) if condition C is met.

(6) Condition C is that, in determining the CFC’s assumed taxable total profits for the accounting period, Part 21B of CTA 2010 (group mismatch schemes) has effect so as to exclude an amount from being brought into account as a debit or credit for the purposes of Part 5 of CTA 2009 (loan relationships) or Part 7 of that Act (derivative contracts).

Chapter 13

The low profit margin exemption

371MA Introduction to Chapter

This Chapter sets out an exemption called “the low profit margin exemption” for the purposes of section 371BA (2)(b).

371MB The basic rule

(1) The low profit margin exemption applies for a CFC’s accounting period if the CFC’s accounting profits for the period are no more than 10% of the CFC’s relevant operating expenditure.

(2) In this section references to the CFC’s accounting profits are to those profits as determined before any deduction for interest.

(3) The CFC’s “relevant operating expenditure” is its operating expenditure brought into account in determining its accounting profits for the accounting period, excluding—

(a) the cost of goods purchased by the CFC, other than goods used by the CFC in the territory in which it is resident for the accounting period, and

(b) any expenditure which gives rise, directly or indirectly, to income of a person related to the CFC.

371MC Anti-avoidance

The low profit margin exemption does not apply for a CFC’s accounting period (“the relevant accounting period”) if—

(a) an arrangement is entered into at any time,

(b) in consequence of the arrangement, the low profit margin exemption would (apart from this section) apply for the relevant accounting period, and

(c) the main purpose, or one of the main purposes, of the arrangement is to secure that the low profit margin exemption applies—

(i) for the relevant accounting period, or

(ii) for that period and one or more other accounting periods of the CFC.

Chapter 14

The tax exemption

371NA Introduction to Chapter

This Chapter sets out an exemption called “the tax exemption” for the purposes of section 371BA (2)(b).

371NB The basic rule

(1) Take the following steps to determine if the tax exemption applies for a CFC’s accounting period.

Step 1

Applying section 371TB, determine the territory (“the CFC’s territory”) in which the CFC is resident for the accounting period.

If no territory of residence can be determined by applying section 371TB, the tax exemption cannot apply and no further steps are to be taken.

Step 2

Determine the amount of tax (“the local tax amount”) which is paid in the CFC’s territory in respect of the CFC’s local chargeable profits arising in the accounting period (applying section 371NC so far as relevant).

If the local tax amount is determined under designer rate tax provisions (see section 371ND), the tax exemption cannot apply and step 3 is not to be taken.

Step 3

In accordance with section 371NE, determine the amount of the corresponding UK tax for the accounting period.

The tax exemption applies if the local tax amount is at least 75% of the corresponding UK tax.

(2) Subsection (3) applies if an amount of tax is paid in the CFC’s territory by a person (whether or not the CFC) in respect of any of the CFC’s local chargeable profits arising in the accounting period taken together with other amounts.

(3) For the purposes of step 2 in subsection (1) the amount of tax is to be apportioned between the CFC’s local chargeable profits in question and the other amounts on a just and reasonable basis.

(4) In this Chapter references to the CFC’s local chargeable profits are to its profits as determined for tax purposes under the law of the CFC’s territory, ignoring any capital gains or losses.

371NC Reductions to “the local tax amount”

(1) This section applies for the purposes of step 2 in section 371NB (1).

(2) The local tax amount is to be reduced to what it would have been—

(a) had any income, or any income and expenditure (where the income exceeds the expenditure), to which subsection (3)applies not been brought into account in determining the CFC’s local chargeable profits arising in the accounting period in respect of which tax is paid in the CFC’s territory, and

(b) had any expenditure to which subsection (4) applies been brought into account in determining those profits.

(3) This subsection applies to any income, or any income and expenditure, of the CFC—

(a) which is brought into account in determining the CFC’s local chargeable profits arising in the accounting period in respect of which tax is paid in the CFC’s territory, but

(b) which does not fall to be brought into account in determining the CFC’s assumed taxable total profits for the accounting period.

(4) This subsection applies to any expenditure of the CFC—

(a) which is not brought into account in determining the CFC’s local chargeable profits arising in the accounting period in respect of which tax is paid in the CFC’s territory, but

(b) which does fall to be brought into account in determining the CFC’s assumed taxable total profits for the accounting period.

(5) Subsection (6) applies if—

(a) in the CFC’s territory any tax falls to be paid by the CFC in respect of the CFC’s local chargeable profits arising in the accounting period,

(b) under the law of that territory, any repayment of tax, or any payment in respect of a credit for tax, is made to a person other than the CFC, and

(c) that repayment or payment is directly or indirectly in respect of the whole or part of the tax mentioned in paragraph (a).

(6) The local tax amount is to be reduced (or further reduced after any reduction under subsection (2)) by the amount of that repayment or payment.

371ND What are “designer rate tax provisions”?

(1) For the purposes of step 2 in section 371NB (1) “designer rate tax provisions” means provisions—

(a) which appear to the HMRC Commissioners to be designed to enable companies to exercise significant control over the amount of tax which they pay, and

(b) which are specified in regulations made by the HMRC Commissioners.

(2) Regulations under subsection (1) may make different provision for different cases or with respect to different territories.

371NE How to determine “the corresponding UK tax”

(1) For the purposes of step 3 in section 371NB (1) “the corresponding UK tax” is the amount of corporation tax which, applying the corporation tax assumptions, would be charged in respect of the CFC’s assumed taxable total profits for the accounting period.

(2) In determining that amount of corporation tax—

(a) ignore any relief from corporation tax attributable to the local tax amount which would be given to the CFC by virtue of Part 2 (double taxation relief) in respect of any income, and

(b) deduct from what would otherwise be that amount of corporation tax—

(i) any amount which, applying the corporation tax assumptions, would be set off against corporation tax on the CFC’s assumed taxable total profits by virtue of section 967 of CTA 2010 (cases in which a company receives a payment bearing income tax), and

(ii) any amount of income tax or corporation tax actually charged in respect of any income included in the CFC’s assumed taxable total profits.

(3) In subsection (2)(b) the references to an amount being set off or an amount actually charged do not include so much of any such amount as has been or falls to be repaid to the CFC whether on the making of a claim or otherwise.

Chapter 15

Relevant interests in a CFC

Introduction

371OA Application of Chapter

This Chapter applies for the purpose of determining the persons who have “relevant interests” in a CFC for the purposes of step 1 in section 371BC (1).

371OB Provision about interpretation

(1) This section applies for the purposes of this Chapter.

(2) A person’s interest in a company is an “indirect” interest so far as the person has the interest by virtue of having an interest in another company; and references to a “direct” interest in a company are to be read accordingly.

(3) An interest held by an open-ended investment company within the meaning of Chapter 2 of Part 13 of CTA 2010 (see sections 613 and 615) is treated as held by the company’s shareholders in proportion to their shareholdings.

(4) An interest held by the trustees of an authorised unit trust is treated as held by the persons who have rights under the trust in proportion to their rights.

(5) An interest held by a bare trustee or nominee (including by virtue of subsection (3) or (4)) is treated as held by the person or persons for whom the bare trustee or nominee holds the interest.

(6) “Bare trustee” means a person acting as trustee for—

(a) a person absolutely entitled as against the trustee,

(b) two or more persons who are so entitled,

(c) a person who would be so entitled but for being a minor or otherwise lacking legal capacity, or

(d) two or more persons who would be so entitled but for all or any of them being a minor or otherwise lacking legal capacity.

(7) Subsection (8) applies in a case not covered by subsection (5) if—

(a) an interest is held in a fiduciary or representative capacity (including by virtue of subsection (3) or (4)), and

(b) there are one or more identifiable beneficiaries.

(8) The interest is taken to be held by that beneficiary or, as the case may be, apportioned between those beneficiaries on a just and reasonable basis.

371OC “Relevant interests” of UK resident companies

(1) A UK resident company’s interest in a CFC is a “relevant interest”, except so far as subsection (2) applies to it.

(2) This subsection applies to the interest so far as it is an indirect interest which the UK resident company has by virtue of having an interest in another UK resident company.

371OD “Relevant interests” of persons related to UK resident companies

(1) This section applies if, by virtue of section 371OC, a UK resident company (“UKRC”) has a relevant interest in a CFC.

(2) A related person’s interest in the CFC is a “relevant interest”, except so far as subsection (4) or (5) applies to it.

(3) “Related person” means a person, other than a UK resident company, who is connected or associated with UKRC.

(4) This subsection applies to the related person’s interest so far as it is an indirect interest which the related person has by virtue of having an interest in a UK resident company or another related person.

(5) This subsection applies to the interest so far as it is the same as UKRC’s relevant interest in the CFC by virtue of UKRC having an interest in the related person.

371OE Other “relevant interests”

(1) This section applies if a person (“P”) has a direct interest in a CFC which is not a relevant interest by virtue of section 371OC or 371OD.

(2) P’s direct interest is a “relevant interest”, except so far as subsection (3) applies to it.

(3) This subsection applies to P’s direct interest so far as it is the same as another person’s relevant interest in the CFC by virtue of the other person having an interest in P.

(4) In subsection (3) the reference to another person’s relevant interest is to another person’s relevant interest by virtue of section 371OC or 371OD.

Chapter 16

Creditable tax of a CFC

371PA What is “creditable tax”?

(1) For the purposes of step 2 in section 371BC (1) a CFC’s creditable tax for an accounting period is the total of—

(a) the amount of any relief from corporation tax attributable to any foreign tax which, applying the corporation tax assumptions, would be given to the CFC by virtue of Part 2 (double taxation relief) in respect of any income included or represented in the CFC’s chargeable profits for the accounting period,

(b) any amount of relevant income tax which, applying the corporation tax assumptions, would be set off against corporation tax on the CFC’s chargeable profits for the accounting period by virtue of section 967 of CTA 2010 (cases in which a company receives a payment bearing income tax),

(c) any amount of income tax or corporation tax actually charged in respect of any income included or represented in the CFC’s chargeable profits for the accounting period, and

(d) any amount of a foreign CFC charge paid in respect of any income included or represented in the CFC’s chargeable profits for the accounting period.

(2) In subsection (1)(a) “foreign tax” means—

(a) the local tax amount, or

(b) any tax under the law of a relevant foreign territory.

(3) In subsection (1)(b) “relevant income tax” means income tax which the CFC bears by deduction on a payment so far as the payment is included or represented in the CFC’s chargeable profits.

(4) In subsection (1)(d) “foreign CFC charge” means a charge under the law of a relevant foreign territory (by whatever name known) which is similar to the CFC charge.

(5) In subsection (1)(b) to (d) references to an amount being set off, an amount actually charged or an amount paid do not include so much of any such amount as has been or falls to be repaid to the CFC or any other person whether on the making of a claim or otherwise.

(6) “Relevant foreign territory” means a territory outside the United Kingdom other than the territory in which the CFC is resident for the accounting period.

Chapter 17

Apportionment of a CFC’s chargeable profits and creditable tax

Introduction

371QA Application of Chapter

This Chapter applies for the purpose of apportioning a CFC’s chargeable profits and creditable tax for an accounting period among the relevant persons as required by step 3 in section 371BC (1).

371QB Provision about interpretation

(1) This section applies for the purposes of this Chapter.

(2) Section 371OB applies as it applies for the purposes of Chapter 15.