for the accounting period been prepared for the CFC in accordance
with—

(a) the acceptable accounting practice in accordance with which
financial statements for the CFC are normally prepared, or

(b) 5if paragraph (a) cannot be applied, international accounting
standards.

(6) Each of the following is an “acceptable accounting practice”—

(a) international accounting standards,

(b) UK generally accepted accounting practice, and

(c) 10accounting practice which is generally accepted in the
territory in which the CFC is resident for the accounting
period.

(7) In this section references to amounts disclosed in financial
statements include amounts comprised in amounts so disclosed.

(8) 15If the CFC’s accounting profits (or any amounts included in them)
are determined in a currency other than sterling, they are to be
translated into their sterling equivalent using the average rate of
exchange for the accounting period calculated from daily spot rates.

371VD Adjustments to accounting profits

(1) 20This section applies for the purpose of determining a CFC’s
accounting profits for an accounting period.

(2) The following are to be ignored in determining the profits—

(a) any dividend or other distribution which is not brought into
account in determining the CFC’s assumed total profits for
25the accounting period on the basis that it would be exempt
for the purposes of Part 9A of CTA 2009 (company
distributions),

(b) any property business profits, and

(c) any capital profits or losses.

(3) 30The profits are to include—

(a) any amount which accrues during the accounting period to
the trustees of a settlement in relation to which the CFC is a
settlor or beneficiary, and

(b) the CFC’s share of any income which accrues during the
35accounting period to a partnership of which the CFC is a
partner, as determined by apportioning that income between
the partners on a just and reasonable basis.

(4) If there is more than one settlor or beneficiary in relation to a
settlement covered by subsection (3)(a), the income is to be
40apportioned between the CFC and the other settlors or beneficiaries
on a just and reasonable basis.

(5) In subsection (3)(b) “partnership” includes an entity established
under the law of a territory outside the United Kingdom of a similar
character to a partnership; and “partner” is to be read accordingly.

(6) 45In determining the CFC’s accounting profits for the accounting
period for the purposes of this Chapter, Part 4 (transfer pricing)

applies as it applies in relation to the determination of the CFC’s
assumed taxable total profits for the accounting period.

(7) But subsection (6) is to be ignored if the difference made in the
amount of the profits as a result of its application would not be more
5than £50,000.

371VE Cell companies etc

(1) This Part applies in relation to unincorporated cells and incorporated
cells as if they were non-UK resident companies.

(2) An “unincorporated cell” is an identifiable part (by whatever name
10known) of a non-UK resident company which meets the following
condition.

(3) The condition is that, under the law under which the non-UK
resident company is incorporated or formed, under the articles of
association or other document regulating the non-UK resident
15company or under any arrangement entered into by or in relation to
the non-UK resident company—

(a) assets and liabilities of the non-UK resident company may be
wholly or mainly allocated to the part of the company in
question,

(b) 20liabilities so allocated are to be met wholly or mainly out of
assets so allocated, and

(c) there are members of the non-UK resident company who
have rights in relation to the company’s assets which cover
only or mainly assets so allocated.

(4) 25Subsection (1) does not affect the status of the non-UK resident
company mentioned in subsection (2) as a company for the purposes
of this Part; but its assets and liabilities are to be apportioned
between it and the unincorporated cell (and any other
unincorporated cells which are part of the company) on a just and
30reasonable basis.

(5) An “incorporated cell” is an entity (by whatever name known)
established under the articles of association or other document
regulating a non-UK resident company—

(a) which, under the law under which the non-UK resident
35company is incorporated or formed, has a legal personality
distinct from that of the non-UK resident company, but

(b) which is not itself a company (ignoring this section).

(6) Subsection (1) does not affect the status of the non-UK resident
company mentioned in subsection (5) as a company for the purposes
40of this Part.

(7) The Treasury may by regulations provide for this Part to apply in
relation to—

(a) parts of companies falling within specified descriptions, or

(b) other entities falling within specified descriptions which are
45not themselves companies (ignoring this section),

as if they were non-UK resident companies.

(8) Regulations under subsection (7) may add to, repeal or otherwise
amend subsections (1) to (6).

371VF Connected persons etc

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

(2) 5The following provisions of CTA 2010 apply—

(a) section 882(2) to (7) (“associated” persons), and

(b) section 1122 (“connected” persons).

(3) A person is “related” to a CFC if—

(a) the person is connected or associated with the CFC,

(b) 10at least 25% of the CFC’s chargeable profits would be
apportioned to the person at step 3 in section 371BC (1) were
that step required to be taken in relation to the accounting
period in question, or

(c) if the CFC is a CFC by virtue of section 371RC, the person is
15connected or associated with either or both of the controllers.

(4) If a CFC is a CFC by virtue of section 371RG, a person is to be taken
to be connected, associated or related to the CFC if it is reasonable to
suppose that, apart from the arrangement falling within section
371RG (4), the person would be connected, associated or related to
20the CFC.

371VG Finance profits

(1) In this Part “non-trading finance profits”, in relation to a CFC, means
any amounts—

(a) which are included in the CFC’s assumed total profits for the
25accounting period in question on the basis that they would be
chargeable to corporation tax under—

(i) section 299 of CTA 2009 (charge to tax on non-trading
profits from loan relationships), or

(ii) Part 9A of that Act (company distributions), or

(b) 30which—

(i) are included in the CFC’s assumed total profits for the
accounting period in question on the basis that they
arise from an arrangement which would be a relevant
finance lease, but

(ii) 35are not trading profits.

(2) Subsection (1) is subject to subsection (3) and sections 371CB (2) and
(8) and 371CE (2).

(3) Any credits or debits which are to be brought into account in
determining the CFC’s property business profits for the accounting
40period in question in accordance with section 371VI (2) are not to be
brought into account in determining the CFC’s non-trading finance
profits.

(4) In this Part, “trading finance profits”, in relation to a CFC, means any
amounts included in the CFC’s assumed total profits for the
45accounting period in question—

(a) which are trading profits by virtue of section 297, 573 or
931W of CTA 2009, or

(b) which are trading profits arising from an arrangement which
would be a relevant finance lease.

(5) 5Subsection (4) is subject to section 371CE (2).

371VH Interests in companies

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

(2) The following persons have an “interest” in a company—

(a) any person who has, or is entitled to acquire, share capital or
10voting rights in the company,

(b) any person who has, or is entitled to acquire, a right to receive
or participate in distributions of the company,

(c) any person who is entitled to secure that income or assets of
the company will be applied directly or indirectly for the
15person’s benefit, and

(d) any other person who, either alone or together with other
persons, has control of the company.

(3) In subsection (2) references to a person being entitled to do anything
cover cases in which—

(a) 20a person is presently entitled to do it at a future date, or

(b) a person will at a future date be entitled to do it.

(4) But an entitlement to secure that the income or assets of a company
will be applied as mentioned in subsection (2)(c) which is contingent
upon a default of the company or any other person under any
25agreement does not fall within subsection (2)(c) unless the default
has occurred.

(5) Rights which a person has as a loan creditor of a company are to be
ignored for the purposes of subsection (2).

(6) In subsection (5)—

• 30“loan creditor” has the meaning given by section 453 of CTA
  2010, but ignoring subsection (4) of that section, and

• “rights” does not include any rights excluded from subsection
  (5) by subsection (8).

(7) Subsection (8) applies if, in accordance with generally accepted
35accounting practice, a loan creditor divides its rights and liabilities
under a loan relationship to which it is a party as mentioned in
section 415(1) of CTA 2009 (loan relationships with embedded
derivatives).

For this purpose, if a loan creditor does not prepare its accounts in
40accordance with generally accepted accounting practice, assume that
it prepares IAS accounts (within the meaning of section 1127 of CTA
2010).

(8) Any rights falling within section 415(1)(b) of CTA 2009 are to be
excluded from subsection (5).

(9) 45Subsection (10) applies in relation to a CFC which is a CFC by virtue
of section 371RG.

(10) The persons who have “interests” in the CFC, and the nature of their
interests, are to be determined by applying section 371RG (3) and
otherwise by reference to what it is reasonable to suppose would
have been the state of affairs in relation to the CFC apart from the
5arrangement falling within section 371RG (4).

(11) Subsections (12) and (13) apply if—

(a) apart from subsection (12), a person has, or two or more
persons together have, an interest in a company (“company
1”), and

(b) 10company 1 has an interest in another company (“company
2”).

(In paragraph (b) “interest” includes an interest by virtue of
subsection (12).)

(12) The person or persons mentioned in subsection (11)(a) are to be taken
15to have an interest in company 2 (and references to a person’s
interest in a company are to be read accordingly).

(13) For the purposes of references to one person’s interest in a company
being the same as another person’s interest—

(a) the person mentioned in subsection (11)(a), or

(b) 20each of the persons so mentioned,

is to be taken as having, to the extent of that person’s interest in
company 1, the same interest as company 1 has in company 2.

(14) If two or more persons jointly have an interest in a company
otherwise than in a fiduciary or representative capacity, they are
25taken to have the interest in equal shares.

371VI Property business profits

(1) Subject to what follows, in this Part “property business profits”, in
relation to a CFC, means any profits included in the CFC’s assumed
total profits for the accounting period in question on the basis that
30they would be chargeable to corporation tax under Part 4 of CTA
2009 (property income).

(2) Any credits or debits—

(a) which are brought into account under Part 5 of CTA 2009 in
determining the CFC’s assumed total profits for the
35accounting period, and

(b) which fall within subsection (3) or (5),

are to be brought into account in determining the CFC’s property
business profits.

(3) Credits and debits fall within this subsection so far as they are from
40a debtor relationship of the CFC where the loan which is the subject
of the debtor relationship—

(a) is made and used solely for the purposes of a relevant
property business, and

(b) is not used to any extent for the purpose of funding (directly
45or indirectly) a loan to any other person.

(4) In subsection (3) “debtor relationship” has the meaning given by
section 302(6) of CTA 2009 (and does not include anything which,

although not falling within section 302(1) of that Act, is treated for
any purpose as if it were a debtor relationship); and “loan” is to be
read accordingly.

(5) Credits and debits fall within this subsection so far as they—

(a) 5are from any derivative contract or other arrangement
entered into by the CFC as a hedge of risk in connection with
a relevant property business, and

(b) are attributable to that hedge of risk.

(6) “Relevant property business” means a UK property business or
10overseas property business of the CFC, profits of which are included
in the CFC’s property business profits apart from subsection (2).

371VJ Regulations

Regulations under this Part may contain incidental, supplemental,
consequential and transitional provision and savings.”

15Part 2 Foreign permanent establishments

Main provision

2 Chapter 3A of Part 2 of CTA 2009 (foreign permanent establishments of UK
resident companies) is amended as follows.

3 20In section 18A(1) omit “UK resident”.

4 After section 18C insert—

“18CA Income arising from immovable property

The references in section 18A(6) to profits which would be taken to
be attributable to the permanent establishment of a company in a
25territory include any income arising from immovable property
which has been used for the purposes of the business carried on by
the company through the permanent establishment in the territory
(to such extent as is appropriate having regard to the extent to which
it has been so used); and the references to losses in section 18A(7) are
30to be construed accordingly.

18CB Profits and losses from investment business

(1) In determining any relevant profits amount or relevant losses
amount under section 18A(6) or (7) in relation to a company, there is
to be left out of account any profits or losses of any part of the
35company’s business which consists of the making of investments.

(2) Subsection (1) does not apply to profits or losses arising from assets
so far as they are effectively connected with any part of the
permanent establishment through which a trade or overseas
property business of the company is carried on in the territory.

(3) 40In subsection (2) “effectively connected” is to be given the same
meaning as it would be given for the purposes of the OECD model
were subsection (2) contained in the OECD model.”

(1) Section 18F is amended as follows.

(2) In subsection (1)(a) for “subsection (6)” substitute “subsections (6) to (8)”.

(3) For subsection (2) substitute—

“(2) The relevant day”, in relation to an election made by a UK resident
5company, means—

(a) the day on which, at the time of the election, the company’s
accounting period following that in which the election is
made is expected to begin, or

(b) if the election is made before the company’s first accounting
10period, the day on which that accounting period begins.

(2A) “The relevant day”, in relation to an election made by a non-UK
resident company, means the day on which the company becomes
UK resident.”

(4) In subsection (6) for “The election can be revoked” substitute “An election
15can be revoked by the company which made it”.

(5) After subsection (6) insert—

“(7) An election made by a UK resident company is revoked if the
company ceases to be UK resident.

(8) An election made by a non-UK resident company is revoked if,
20having become UK resident, the company ceases to be UK resident.”

6 For sections 18G to 18I substitute—

“18G Anti-diversion rule

(1) This section applies for the purposes of this Chapter for any relevant
accounting period (“period X”) of a company (“company X”) in
25relation to a territory outside the United Kingdom (“territory X”) if—

(a) there is an adjusted relevant profits amount in relation to
territory X for period X,

(b) the adjusted relevant profits amount includes diverted
profits (see section 18H), and

(c) 30none of the exemptions mentioned in section 18I applies for
period X.

(2) The diverted profits are to be left out of the adjusted relevant profits
amount.

(3) For the purposes of this Chapter “adjusted”, in relation to a relevant
35profits amount, is what the relevant profits amount would be if it
were determined without reference to gains or losses which are
chargeable gains or allowable losses for corporation tax purposes.

18H What are “diverted profits”?

(1) In section 18G (1)(b) “diverted profits” means so much of company
40X’s total profits of period X as pass through the diverted profits
gateway.

(2) To determine the extent to which company X’s total profits of period
X pass through the diverted profits gateway, apply—

(a) section 371BB of TIOPA 2010 (controlled foreign companies:
the CFC charge gateway), and

(b) except Chapter 8 of Part 9A of that Act, the other provisions
referred to in that section,

5as if references to the CFC charge gateway were references to the
diverted profits gateway.

(3) In applying section 371BB of TIOPA 2010 and the other provisions
referred to in it assume—

(a) that company X is a CFC resident in territory X,

(b) 10that period X is the CFC’s accounting period, and

(c) that company X’s total profits of period X are the CFC’s
assumed total profits for the accounting period.

(4) Subsection (3)(a) does not require it to be assumed that there is any
change in the place or places at which company X carries on its
15activities.

(5) Section 371BB of TIOPA 2010 and the other provisions referred to in
it are also to be applied subject to sections 18HA to 18HE below.

(6) In this section—

(a) references to company X’s total profits of period X are to
20those profits ignoring this Chapter and step 2 in section 4(3)
of CTA 2010, and

(b) references to section 371BB of TIOPA 2010 are to that section
omitting subsection (2)(b).

18HA Modification of Chapter 3 of Part 9A of TIOPA 2010

25Chapter 3 of Part 9A of TIOPA 2010 (the CFC charge gateway:
determining which of Chapters 4 to 8 applies) applies for the
purposes of section 18H (2) with the omission of—

(a) section 371CA (10)(a),

(b) in section 371CB (2), the words “or Chapter 8 (solo
30consolidation)”,

(c) section 371CC (1)(b), (3)(b) and (c), (4) to (7) and (9) and (10),

(d) section 371CD,

(e) section 371CE (2) to (7), and

(f) section 371CG.

18HB 35 Modification of Chapter 4 of Part 9A of TIOPA 2010

(1) Chapter 4 of Part 9A of TIOPA 2010 (the CFC charge gateway: profits
attributable to UK activities) applies for the purposes of section
18H (2) with the following modifications.

(2) The modifications are—

(a) 40section 371DA (3)(g)(i) is to be omitted, and

(b) in section 371DH (4), after “the accounting period”, in the
second place it occurs, there is to be inserted “or the United
Kingdom”.

(3) Section 371VF (3) of TIOPA 2010 (definition of “related” person) is to
45be applied as relevant with the omission of paragraphs (b) and (c).

18HC Modification of Chapter 5 of Part 9A of TIOPA 2010

Chapter 5 of Part 9A of TIOPA 2010 (the CFC charge gateway: non-
trading finance profits) applies for the purposes of section 18H (2)
with the omission of—

(a) 5in section 371EA (1), the words from “so far as” to the end, and

(b) sections 371EB to 371EE.

18HD Modification of Chapter 7 of Part 9A of TIOPA 2010

Chapter 7 of Part 9A of TIOPA 2010 (the CFC charge gateway:
captive insurance business) applies for the purposes of section
10 18H (2) with the omission of section 371GA (5)(b).

18HE Modification of Chapter 9 of Part 9A of TIOPA 2010

(1) Chapter 9 of Part 9A of TIOPA 2010 (exemptions for profits from
qualifying loan relationships) applies for the purposes of section
18H (2) with the following modifications.

(2) 15In section 371IA (2) and (11) the reference to a chargeable company is
to be read as a reference to company X (as is the reference in section
371CB (8)); and references elsewhere in Chapter 9 to company C are
to be read as references to company X.

(3) Sections 371IB, 371IC and 371IE are to be omitted.

(4) 20In section 371IJ references to the relevant corporation tax accounting
period are to be read as references to period X.

18I Exemptions from anti-diversion rule

(1) The exemptions referred to in section 18G (1)(c) are the exemptions
set out in Chapters 11 to 14 of Part 9A of TIOPA 2010 (controlled
25foreign companies: exemptions from the CFC charge).

(2) In applying those Chapters for the purposes of section 18G (1)(c)—

(a) references to section 371BA (2)(b) of TIOPA 2010 are to be
read as references to section 18G (1)(c),

(b) the assumptions set out in subsection (3) are to be made, and

(c) 30section 371VF (3) of TIOPA 2010 (definition of “related”
person) is to be read with the omission of paragraphs (b) and
(c).

(3) For the purposes of subsection (2)(b), assume—

(a) that the permanent establishment which company X has in
35territory X is a separate company from company X,

(b) that the separate company is a CFC resident in territory X,

(c) that period X and company X’s other accounting periods for
corporation tax purposes are accounting periods of the CFC
for the purposes of Part 9A of TIOPA 2010,

(d) 40that the CFC’s assumed total profits for period X are the
adjusted relevant profits amount,

(e) that the CFC’s assumed taxable total profits for period X are
the same as the CFC’s assumed total profits for period X,

(f) that the CFC is connected with company X and is also
connected or associated with any person with whom
company X is connected or associated, and

(g) that any person who has an interest in company X also has an
5interest in the CFC.

(4) Chapters 11 to 14 of Part 9A of TIOPA 2010 are also to be applied
subject to sections 18IA to 18ID below.

18IA The excluded territories exemption

(1) Chapter 11 of Part 9A of TIOPA 2010 (controlled foreign companies:
10the excluded territories exemption) applies for the purposes of
section 18G (1)(c) with the following modifications.

(2) Sections 371KB (1)(b)(iii) and 371KH are to be omitted.

(3) Section 371KC is to be omitted and the assumption set out in section
18I (3)(b) above in relation to the CFC’s residence is to be applied
15instead; and references to “the CFC’s territory” are to be read
accordingly.

(4) Section 371KD (3) is to be omitted and references to a CFC’s
accounting profits for an accounting period are to be read as
references to the adjusted relevant profits amount.

(5) 20Section 371KE (2)(b) is to be omitted.

(6) Section 371KF is to be omitted.

(7) In section 371KG (3) the reference to the CFC’s equity or debt is to be
read as a reference to company X’s equity or debt (ignoring the
assumption in section 18I (3)(a) above).

(8) 25Section 371KI (2) and (3) is to be omitted.

(9) In section 371KJ—

(a) in subsection (2)(a), the reference to intellectual property held
by the CFC is to be read as a reference to intellectual property
held by company X (ignoring the assumption in section
30 18I (3)(a) above), and

(b) in subsections (2)(b) and (c) and (4), references to the CFC are
to be read as references to company X (ignoring that
assumption).

18IB The low profits exemption

35Chapter 12 of Part 9A of TIOPA 2010 (controlled foreign companies:
the low profits exemption) applies for the purposes of section
18G (1)(c) with the omission of section 371LB (2) and (4) and section
371LC (5) and (6).

18IC The low profit margin exemption

(1) 40Chapter 13 of Part 9A of TIOPA 2010 (controlled foreign companies:
the low profit margin exemption) applies for the purposes of section
18G (1)(c) with the following modifications.

(2) In section 371MB—

(a) subsection (2) is to be omitted, and