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371DF | Exclusion: trading profits (the basic rule) |
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(1) | All trading profits are to be excluded from the provisional Chapter 4 |
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profits if the following conditions are met— |
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(a) | the business premises condition (see section 371DG), |
| |
(b) | the income condition (see section 371DH), |
| 5 |
(c) | the management expenditure condition (see section 371DI), |
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(d) | the IP condition (see section 371DJ), and |
| |
(e) | the export of goods condition (see section 371DK). |
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(2) | Trading profits are also to be excluded from the provisional Chapter |
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4 profits in accordance with section 371DI(7) and (8) (so far as |
| 10 |
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(3) | This section is subject to section 371DL (anti-avoidance). |
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371DG | Exclusion: trading profits (business premises condition) |
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(1) | This section applies for the purposes of section 371DF(1)(a). |
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(2) | The business premises condition is met if, at all times during the |
| 15 |
accounting period, the CFC has in the territory in which it is resident |
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for the accounting period premises— |
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(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 |
| 20 |
| |
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(a) | an office, shop, factory or other building or part of a building, |
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(b) | a mine, an oil or gas well, a quarry or other place of extraction |
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(c) | a building site or the site of a construction or installation |
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project, but only if the building work or project has a duration |
| |
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371DH | Exclusion: trading profits (income condition) |
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(1) | This section applies for the purposes of section 371DF(1)(b). |
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(2) | The income condition is met if no more than 20% of the CFC’s |
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relevant trading income derives (directly or indirectly) from— |
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(a) | UK resident persons, or |
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(b) | UK permanent establishments of non-UK resident |
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(3) | For the purposes of subsection (2) the CFC’s “relevant trading |
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income” is its trading income, excluding any income arising from the |
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sale in the United Kingdom of goods produced by the CFC in the |
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territory in which it is resident for the accounting period. |
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(4) | Subsection (5) applies instead of subsection (2) if, at any time during |
| 40 |
the accounting period, the CFC’s main business is banking business |
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in relation to which the CFC is regulated in the territory in which it |
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is resident for the accounting period. |
| |
|
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|
| |
|
(5) | The income condition is met if the CFC’s relevant UK trading income |
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is no more than 10% of the CFC’s trading income. |
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(6) | The CFC’s “relevant UK trading income” is its trading income so far |
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as it derives (directly or indirectly) from— |
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(a) | UK resident persons, or |
| 5 |
(b) | UK permanent establishments of non-UK resident |
| |
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| but excluding interest received from UK resident companies which |
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are connected or associated with the CFC. |
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(7) | Neither subsection (2)(a) nor subsection (6)(a) covers income |
| 10 |
deriving (directly or indirectly) from a UK resident company if— |
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(a) | the company has made an election under section 18A of CTA |
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2009 (exemption for profits or losses of foreign permanent |
| |
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(b) | an expense corresponding to the income is brought into |
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account for the purpose of determining any exemption |
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adjustment in relation to the company under that section. |
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371DI | Exclusion: trading profits (management expenditure condition) |
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(1) | This section applies for the purposes of section 371DF(1)(c). |
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(2) | The management expenditure condition is met if the UK related |
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management expenditure is no more than 20% of the total related |
| |
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(3) | “The total related management expenditure” is the total of the |
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following expenditure incurred during the accounting period by the |
| |
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(a) | expenditure incurred in the employment of any member of |
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the CFC’s staff who carries out relevant management |
| |
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(b) | expenditure incurred in the engagement (directly or |
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indirectly) of any individual who is not a member of the |
| 30 |
CFC’s staff but who carries out relevant management |
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functions in consequence of an arrangement between the |
| |
individual and the CFC, and |
| |
(c) | expenditure incurred in the engagement (directly or |
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indirectly) of any company related to the CFC so far as the |
| 35 |
expenditure represents expenditure incurred by the related |
| |
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(i) | the employment of any member of the related |
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company’s staff who carries out relevant |
| |
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(ii) | the engagement by the related company (directly or |
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indirectly) of any individual who is not a member of |
| |
the related company’s staff but who carries out |
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relevant management functions in consequence of an |
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arrangement between the individual and the related |
| 45 |
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(4) | “The UK related management expenditure” is the total related |
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management expenditure so far as it relates to members of staff or |
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|
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|
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|
other individuals who carry out relevant management functions in |
| |
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(5) | A person carries out a “relevant management function” if the person |
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manages or controls any assets or risks included in the relevant |
| |
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(6) | This covers (for example) a person who formulates plans or makes |
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decisions in relation to— |
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(a) | the acquisition, creation, development or exploitation of such |
| |
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(b) | the taking on, or bearing, of such risks. |
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(7) | Subsection (8) applies if— |
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(a) | the conditions mentioned in section 371DF(1)(a), (b), (d) and |
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(e) are met but the management expenditure condition is not |
| |
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(b) | there is an asset or risk which is included in the relevant |
| 15 |
assets and risks and to which any part of the total related |
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management expenditure relates, |
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(c) | the 50% condition is met in relation to that asset or risk, and |
| |
(d) | trading profits arising from that asset or risk are included in |
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the provisional Chapter 4 profits. |
| 20 |
(8) | The trading profits are to be excluded from the provisional Chapter |
| |
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(9) | The 50% condition is met in relation to an asset or risk if the UK |
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related management expenditure so far as relating to the asset or risk |
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is no more than 50% of the total related management expenditure so |
| 25 |
far as relating to the asset or risk. |
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(10) | Subsection (11) applies if— |
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(a) | any part of the total related management expenditure relates |
| |
to a number of assets or risks included in the relevant assets |
| |
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(b) | it is not reasonably practicable to separate those assets or |
| |
risks for the purpose of determining the extent to which the |
| |
total related management expenditure relates to each of those |
| |
assets or risks separately. |
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(11) | Subsections (7) to (9) apply in relation to those assets or risks taken |
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together and references to an asset or risk are to be read accordingly. |
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371DJ | Exclusion: trading profits (IP condition) |
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(1) | This section applies for the purposes of section 371DF(1)(d). |
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(2) | The IP condition is met unless— |
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(a) | the CFC’s assumed total profits include amounts arising |
| 40 |
from intellectual property held by the CFC (“the exploited |
| |
| |
(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 |
| 45 |
| |
|
| |
|
| |
|
(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 |
| |
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(c) | as a result of those transfers or other derivations, the value of |
| 5 |
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. |
| 10 |
(3) | The significance condition is met if— |
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(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 |
| |
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(b) | as a result of the transfers or other derivations of the UK |
| |
derived IP, the CFC’s assumed total profits are significantly |
| |
higher than what they would otherwise have been. |
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(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 |
| 20 |
property by a person related to the CFC are limited to, as the case |
| |
| |
(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 |
| 25 |
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. |
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371DK | Exclusion: trading profits (export of goods condition) |
| |
(1) | This section applies for the purposes of section 371DF(1)(e). |
| |
(2) | The export of goods condition is met if no more than 20% of the |
| |
CFC’s trading income arises from goods exported from the United |
| |
Kingdom, excluding goods exported from the United Kingdom to |
| 35 |
the territory in which the CFC is resident for the accounting period. |
| |
371DL | Exclusion: trading profits (anti-avoidance) |
| |
(1) | This section applies if— |
| |
(a) | a condition mentioned in section 371DF(1) is met, or |
| |
(b) | the 50% condition mentioned in section 371DI is met in |
| 40 |
relation to an asset or risk (or a number of assets or risks taken |
| |
| |
| but it is reasonable to suppose that that would not be the case apart |
| |
from an arrangement falling within subsection (3). |
| |
(2) | The condition is to be taken not to be met or (as the case may be) not |
| 45 |
to be met in relation to the asset or risk (or the assets or risks taken |
| |
| |
|
| |
|
| |
|
(3) | An arrangement falls within this subsection if— |
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(a) | the arrangement involves the CFC group organising (or |
| |
reorganising) a significant part of its business in a particular |
| |
| |
(b) | the main purpose, or one of the main purposes, of that |
| 5 |
organising (or reorganising) is to secure that— |
| |
(i) | one or more of the conditions mentioned in section |
| |
| |
(ii) | the 50% condition mentioned in section 371DI is met |
| |
in relation to one or more assets or risks. |
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The CFC charge gateway: non-trading finance profits |
| |
| |
(1) | The CFC’s profits falling within this Chapter for the purposes of step |
| |
2 in section 371BB(1) (the CFC charge gateway) are its non-trading |
| 15 |
finance profits so far as they fall within any of sections 371EB to |
| |
| |
(2) | In this Chapter references to the CFC’s non-trading finance profits |
| |
are to be read in accordance with section 371CB(2) and, so far as |
| |
applicable, section 371CB(8). |
| 20 |
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(1) | To determine the extent to which the CFC’s non-trading finance |
| |
profits fall within this section, take steps 1 to 5 and 7 in section |
| |
371DB(1) as if references in section 371DB to the CFC’s assumed total |
| |
profits were references to its non-trading finance profits. |
| 25 |
(2) | Non-trading finance profits fall within this section so far as they |
| |
would be included in the provisional Chapter 4 profits as |
| |
determined on the basis mentioned in subsection (1). |
| |
371EC | Capital investment from the UK |
| |
(1) | Non-trading finance profits fall within this section so far as they arise |
| 30 |
from relevant UK funds or other assets. |
| |
(2) | Subsection (3) applies in relation to any profits which (apart from |
| |
subsection (3)) would fall within this section if— |
| |
(a) | an amount of expenditure incurred by the CFC in managing |
| |
the relevant UK funds or other assets itself was brought into |
| 35 |
account in calculating the profits, and |
| |
(b) | it is reasonable to suppose that the amount of expenditure is |
| |
less than the fee which a company not connected with the |
| |
CFC would charge the CFC for carrying out the same |
| |
| 40 |
(3) | There is to be deducted from the profits an amount representing |
| |
what it is reasonable to suppose the difference between the amount |
| |
of expenditure and the fee would be. |
| |
(4) | “Relevant UK funds or other assets” means— |
| |
|
| |
|
| |
|
(a) | funds or other assets which derive (directly or indirectly) |
| |
from any capital contribution to the CFC made (directly or |
| |
indirectly) by a UK connected company (whether in relation |
| |
to an issue of shares in the CFC or otherwise), |
| |
(b) | funds or other assets which represent, or derive (directly or |
| 5 |
indirectly) from, any amounts included in the CFC’s |
| |
chargeable profits for any earlier accounting period in |
| |
relation to which the CFC charge is charged, |
| |
(c) | funds or other assets which represent, or derive (directly or |
| |
indirectly) from, any amounts which, by virtue of section 174 |
| 10 |
(transfer pricing: claims by disadvantaged person), are left |
| |
out of account in determining the CFC’s assumed total |
| |
profits for the accounting period or any earlier accounting |
| |
| |
(d) | funds or other assets— |
| 15 |
(i) | which represent, or derive (directly or indirectly) |
| |
from, any funds or other assets received by the CFC |
| |
(directly or indirectly) from a UK connected |
| |
| |
(ii) | which are not covered by paragraphs (a) to (c). |
| 20 |
(5) | In subsection (4)(d)(i) the reference to funds or other assets received |
| |
by the CFC does not include funds or other assets received— |
| |
(a) | in exchange for goods or services provided by the CFC, or |
| |
| |
(6) | “UK connected company” means— |
| 25 |
(a) | a UK resident company connected with the CFC, or |
| |
(b) | a non-UK resident company connected with the CFC acting |
| |
through a UK permanent establishment. |
| |
371ED | Arrangements in lieu of dividends etc to UK resident companies etc |
| |
(1) | Non-trading finance profits fall within this section so far as they arise |
| 30 |
from an arrangement (other than a relevant finance lease) in relation |
| |
to which the following condition is met. |
| |
(2) | The condition is that— |
| |
(a) | the arrangement is made by the CFC (directly or indirectly)— |
| |
(i) | with a UK resident company connected with the CFC, |
| 35 |
| |
(ii) | with a non-UK resident company connected with the |
| |
CFC for the purposes of a UK permanent |
| |
establishment of the non-UK resident company, and |
| |
(b) | it is reasonable to suppose— |
| 40 |
(i) | that the arrangement is made as an alternative to the |
| |
CFC paying dividends or making any other |
| |
distribution to the other company (directly or |
| |
| |
(ii) | that the main reason, or one of the main reasons, for |
| 45 |
that is a reason relating to a liability, or potential |
| |
liability, of any person to tax or duty imposed under |
| |
the law of any territory. |
| |
|
| |
|