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

(2) Subsection (3) applies if an amount of tax is paid in the CFC’s
5territory 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
10and 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) 15This 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
20CFC’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) 25This 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) 30which 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
35local 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) 40Subsection (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
45payment 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
5payment.

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
10enable 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
15different 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
20CFC’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) 25deduct 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
30of 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) 35In 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
5have “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
10person 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
15615) 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) 20An 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) 25two 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
30capacity.

(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) 35The 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”,
40except 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) 5This 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
10company, 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
15UKRC’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) 20P’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) 25In 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) 30For 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
35(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
40corporation 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
5income 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) 10In 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
15is 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) 20“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 25 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) 30This section applies for the purposes of this Chapter.

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

(3) “Ordinary shares”, in relation to any company, means shares of a
single class, however described, which is the only class of share
issued by the company.

(4) 35For the purposes of subsection (3)—

(a) “share” includes a fraction of a share, and

(b) shares issued by a company which are paid up to different
amounts are not to be taken to be of a single class.

(5) A person (“P”) holds ordinary shares in the CFC “indirectly” if P
40directly holds ordinary shares in a company which is share-linked to
the CFC.

(6) A company is “share-linked” to the CFC if it has an interest in the
CFC only by virtue of it holding directly—

(a) ordinary shares in the CFC, or

(b) ordinary shares in another company which is share-linked to
5the CFC (whether by virtue of paragraph (a) or this
paragraph),

and “share-linked company” means a company which is share-
linked to the CFC.

How are the apportionments to be made?

371QC The basic rules

(1) 10If conditions X to Z are met, the CFC’s chargeable profits and
creditable tax are to be apportioned among the relevant persons in
accordance with section 371QD.

(2) If not, the percentage of the chargeable profits and the percentage of
the creditable tax to be apportioned to each relevant person is to be
15determined on a just and reasonable basis.

(3) Condition X is that the relevant persons all have their relevant
interests by virtue only of their holding, directly or indirectly,
ordinary shares in the CFC.

(4) Condition Y is that each relevant person meets the requirement that
20the person is either—

(a) UK resident at all times during the accounting period, or

(b) non-UK resident at all times during the accounting period.

(5) Condition Z is that no company which has an intermediate interest
in the CFC at any time in the accounting period has that interest
25otherwise than by virtue of holding, directly or indirectly, ordinary
shares in the CFC.

(6) A company (“C”) has an “intermediate interest” in the CFC if—

(a) C has an interest in the CFC, and

(b) one or more of the relevant persons have relevant interests in
30the CFC by virtue of having an interest in C.

371QD Apportionments to be made in proportion to shareholding

(1) If conditions X to Z in section 371QC are met, apply subsections (2)
and (3) to each relevant person.

(2) Determine the percentage (“P%”) of the issued ordinary shares in the
35CFC represented by the relevant person’s relevant interest.

(3) P% of the CFC’s chargeable profits and P% of the CFC’s creditable
tax is then apportioned to the relevant person.

(4) This section is supplemented by sections 371QE and 371QF.

371QE Indirect shareholdings

(1) 40This section applies to the relevant interest of a relevant person (“R”)
so far as R has that interest by virtue of holding, indirectly, ordinary
shares in the CFC (“the relevant shares”).

(2) The percentage of the issued ordinary shares in the CFC represented
by R’s relevant interest (so far as this section applies to it) is given by
the following formula—

(3) “The appropriate fraction”, in relation to any person who directly
holds ordinary shares in a share-linked company, means that
fraction of the issued ordinary shares in the share-linked company
15which the holding represents.

(4) If R has different indirect holdings of shares in the CFC (as in the case
where different shares are held through different share-linked
companies)—

(a) apply subsection (2) separately in relation to each holding
20(reading references to the relevant shares accordingly), and

(b) then add the separate results together to give the total
percentage of the issued ordinary shares in the CFC
represented by R’s relevant interest (so far as this section
applies to it).

371QF 25 Variable shareholdings

(1) This section applies if the percentage of the issued ordinary shares in
the CFC represented by a relevant person’s relevant interest varies
during the accounting period.

(2) That percentage is taken to be the percentage equal to the sum of the
30relevant percentages for each holding period.

(3) “Holding period” means a part of the accounting period during
which the percentage of the issued ordinary shares in the CFC
represented by the relevant person’s relevant interest remains the
same.

(4) 35“Relevant percentage”, in relation to a holding period, means the
percentage given by the following formula—

Chapter 18

Control etc

371RA Overview of Chapter

(1) Sections 371RB and 371RE set out how to determine for the purposes
of this Part if a company is “controlled” by another person or
5persons.

(2) Sections 371RC and 371RG set out circumstances in which a non-UK
resident company which would not otherwise be a CFC is to be taken
to be a CFC for the purposes of this Part.

371RB Legal and economic control

(1) 10A person (“P”) “controls” a company (“C”) if—

(a) by means of the holding of shares or the possession of voting
power in or in relation to C or any other company, or

(b) by virtue of any powers conferred by the articles of
association or other document regulating C or any other
15company,

P has the power to secure that the affairs of C are conducted in
accordance with P’s wishes.

(2) A person (“P”) “controls” a company (“C”) if it is reasonable to
suppose that P would—

(a) 20if the whole of C’s share capital were disposed of, receive
(directly or indirectly and whether at the time of the disposal
or later) over 50% of the proceeds of the disposal,

(b) if the whole of C’s income were distributed, receive (directly
or indirectly and whether at the time of the distribution or
25later) over 50% of the distributed amount, or

(c) in the event of the winding-up of C or in any other
circumstances, receive (directly or indirectly and whether at
the time of the winding-up or other circumstances or later)
over 50% of C’s assets which would then be available for
30distribution.

(3) For the purposes of subsection (2) any rights which P has as a
relevant bank are to be ignored.

(4) In subsection (2)—

(a) in paragraph (a) the reference to C’s share capital is to C’s
35share capital excluding any share capital held by relevant
banks,

(b) in determining for the purposes of paragraph (b) the
percentage of the distributed amount which it is reasonable
to suppose P would receive, ignore any rights of a relevant
40bank which would entitle the bank directly to receive a
percentage of the distributed amount at the time of the
distribution, and

(c) in determining for the purposes of paragraph (c) the
percentage of C’s assets which it is reasonable to suppose P
45would receive, ignore any rights of a relevant bank which

would entitle the bank directly to receive a percentage of C’s
assets at the time of the winding-up or other circumstances.

(5) “Relevant bank” means a person (“RB”) who—

(a) carries on banking business which is regulated in the
5territory in which RB is resident, and

(b) is acting, in the ordinary course of that business, in relation to
money lent to C by RB in the ordinary course of that business.

(6) In subsections (2) and (4) references to P receiving any proceeds,
amount or assets include references to the proceeds, amount or
10assets being applied (directly or indirectly) for P’s benefit.

(7) If two or more persons, taken together, meet the requirement of
subsection (1) or (2) for controlling a company, those persons are
taken to control the company.

371RC Legal and economic control: the 40% rule

(1) 15This section applies to a non-UK resident company (“C”) if—

(a) in accordance with section 371RB (7), two persons (“the
controllers”) control C, and

(b) one of the controllers is UK resident and the other is non-UK
resident.

(2) 20If conditions X and Y are met, C is to be taken to be a CFC (if C would
not otherwise be).

(3) Condition X is that the UK resident controller has interests, rights
and powers representing at least 40% of the holdings, rights and
powers in respect of which the controllers fall to be taken as
25controlling C.

(4) Condition Y is that the non-UK resident controller has interests,
rights and powers representing—

(a) at least 40%, but

(b) no more than 55%,

30of the holdings, rights and powers in respect of which the controllers
fall to be taken as controlling C.

371RD Legal and economic control: supplementary provision

(1) Subsection (2) applies for the purpose of—

(a) determining, in accordance with section 371RB, if a person, or
35two or more persons, control a company, or

(b) determining if condition X or Y in section 371RC is met in
relation to two persons who control a company.

(2) There is to be attributed to each person all the rights and powers
mentioned in subsection (3) (so far as they would not otherwise be
40attributed to the person).

(3) The rights and powers referred to in subsection (2) are—

(a) rights and powers which the person (“P”) is entitled to
acquire at a future date or which P will, at a future date,
become entitled to acquire,

(b) rights and powers of other persons so far as they fall within
subsection (4),

(c) if P is UK resident, rights and powers of any UK resident
person who is connected with P, and

(d) 5if P is UK resident, rights and powers which would, in
accordance with subsection (2), be attributed to a UK resident
person (“Q”) who is connected with P if Q were P (including
rights and powers which would be attributed to Q by virtue
of this paragraph).

(4) 10Rights and powers fall within this subsection so far as they—

(a) are required, or may be required, to be exercised in one or
more of the following ways—

(i) on behalf of P,

(ii) under the direction of P, or

(iii) 15for the benefit of P, and

(b) are not confined, in a case where a loan has been made by one
person to another, to rights and powers conferred in relation
to property of the borrower by the terms of any security
relating to the loan.

(5) 20In subsections (3)(b) to (d) and (4) references to a person’s rights and
powers include references to any rights or powers which the
person—

(a) is entitled to acquire at a future date, or

(b) will, at a future date, become entitled to acquire.

(6) 25In determining for the purposes of this section whether one person is
connected with another, section 1122(4) of CTA 2010 (as applied by
section 371VF (2)(b)) is to be ignored.

(7) In this section and sections 371RB and 371RC references to—

(a) rights and powers of a person, or

(b) 30rights and powers which a person is or will become entitled
to acquire,

include references to rights and powers which are exercisable by that
person, or (when acquired by that person) will be exercisable, only
jointly with one or more other persons.

371RE 35 Control determined by reference to accounting standards

(1) A person (“P”) “controls” a company (“C”) at any time when P is C’s
parent undertaking.

(2) But C is not to be taken to be a CFC by virtue of subsection (1) at the
time in question unless the 50% condition is met at that time.

(3) 40To determine if the 50% condition is met at the time in question,
assume—

(a) that C is a CFC at that time,

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

(c) that section 371BC (charging the CFC charge) applies in
45relation to the assumed accounting period.

(4) The 50% condition is met at the time in question if, as a result of steps
1 and 3 in section 371BC (1), at least 50% of the CFC’s chargeable