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

(3) “Subsequent relevant time” means any time during the accounting
5period at which there is an increase or some other change in the
relevant interests in the offshore fund which C has.

371BG Companies holding shares as trading assets etc

(1) Subsection (2) applies if conditions A to C are met in relation to a
relevant interest, or a part of a relevant interest, which a chargeable
10company (“CC”) has in the CFC at all times during the CFC’s
accounting period.

(2) Step 5 in section 371BC(1) is to be taken in relation to CC on the
following basis.

(3) That basis is—

(a) 15so much of P% as is attributable to CC having the relevant
interest, or the part of a relevant interest, during the CFC’s
accounting period is to be left out of P%, and

(b) so much of Q% as is so attributable is to be left out of Q%.

(4) Condition A is that, at all times during the CFC’s accounting period,
20CC has the relevant interest, or the part of a relevant interest, by
virtue of its holding shares (“the relevant shares”) in the CFC
(directly or indirectly).

(5) Condition B is that any increase in the value of the relevant shares at
any time during the relevant corporation tax accounting period is (or
25would be) income, or brought into account in determining any
income, of CC chargeable to corporation tax for that period.

(6) Condition C is that any dividend or other distribution received at
any time during the relevant corporation tax accounting period by
CC from the CFC (directly or indirectly) by virtue of its holding the
30relevant shares is (or would be) income, or brought into account in
determining any income, of CC chargeable to corporation tax for that
period.

(7) Subsection (8) applies if—

(a) CC has the relevant interest, or the part of a relevant interest,
35by virtue of section 371OB(3) or (4),

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

(c) conditions B and C would be met but for the offshore fund
40not meeting that test.

(8) Conditions B and C are to be taken to be met.

(9) This section is subject to section 371BH.

371BH Companies carrying on BLAGAB

(1) Subsection (2) applies in relation to a chargeable company (“CC”)
45if—

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

(b) the I-E rules apply to CC for the relevant corporation tax
5accounting period, and

(c) the following are met in relation to a relevant interest, or a
part of a relevant interest, which CC has in the CFC at all
times during the CFC’s accounting period—

(i) condition D,

(ii) 10condition E or F (or both), and

(iii) condition G.

(2) An additional sum is charged on CC at step 5 in section 371BC(1)
and, for this purpose, step 5 is to be taken on the following basis.

(3) That basis is—

(a) 15in paragraph (a) at step 5, the reference to the appropriate
rate is to be read as a reference to—

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

(ii) 20if there is more than one such rate, the average rate
over the whole of the relevant corporation tax
accounting period, and

(b) any reduction of P% or Q% under section 371BG(3) by
reference to any relevant interest of CC is to be ignored, but—

(i) 25P% is to be reduced so that it represents only the
policyholders’ share of the BLAGAB component of
the apportioned profit (see subsections (10) to (12)),
and

(ii) Q% is to be reduced by the same proportion as P% is
30reduced under sub-paragraph (i).

(4) Condition D is that, at all times during the CFC’s accounting period,
CC has the relevant interest, or the part of a relevant interest, by
virtue of its holding shares (“the relevant shares”) in the CFC
(directly or indirectly).

(5) 35Condition E is met if the following requirement is met in relation to
a time during the relevant corporation tax accounting period.

(6) The requirement is that any increase (or any part of any increase) in
the value of the relevant shares which occurs at that time is not (or
would not be) brought into account at step 1 in section 73 of FA 2012
40in determining whether CC has an I-E profit for the relevant
corporation tax accounting period.

(7) Condition F is met if the following requirement is met in relation to
a time during the relevant corporation tax accounting period.

(8) The requirement is that any dividend or other distribution (or any
45part of any dividend or other distribution) received at that time by
CC from the CFC (directly or indirectly) by virtue of its holding the
relevant shares is not (or would not be) brought into account at step
1 in section 73 of FA 2012 in determining whether CC has an I-E
profit for the relevant corporation tax accounting period.

(9) Condition G is that the assets which represent the relevant interest,
or the part of a relevant interest, during the CFC’s accounting period
are (to any extent) assets held by CC for the purposes of CC’s long-
term business.

(10) 5“The apportioned profit” means so much of P% as is attributable to
CC having the relevant interest, or the part of a relevant interest,
during the CFC’s accounting period.

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

10Step 1

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

Step 2

15Calculate how much of that income would be referable, in
accordance with Chapter 4 of Part 2 of FA 2012, to CC’s basic life
assurance and general annuity business.

(12) The “policyholders’ share” of the BLAGAB component of the
apportioned profit is equal to the policyholders’ share of the I - E
20profit for the relevant corporation tax accounting period as
determined in accordance with the rules contained in Chapter 5 of
Part 2 of FA 2012.

Chapter 3

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

371CA Does Chapter 4 apply?

(1) 25Chapter 4 (profits attributable to UK activities) applies for a CFC’s
accounting period unless condition A, B, C or D is met.

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

(3) 30This subsection applies to an arrangement if—

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

(b) 35in consequence of the arrangement, at any time the CFC
expects its business to be more profitable than it would
otherwise be (other than negligibly so).

(4) This subsection applies to an arrangement if—

(a) there is an expectation that, as a consequence of the
40arrangement, one or more persons will have liabilities to tax
or duty imposed under the law of any territory reduced or
eliminated, and

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

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

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

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

(b) 10the UK managed risks borne by the CFC,

to stop being UK managed.

(7) In subsection (6) the reference to the capability of the CFC includes
(in particular) its capability to select persons not connected with it to
provide it with goods or services and to manage the transactions it
15has with persons not connected with it.

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

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

(b) 20that no relevant UK activities (see subsection (10)) by which
any asset or risk was UK managed would be replaced—

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

(ii) in any other way which relies to any extent upon the
25CFC receiving (directly or indirectly) resources or
other assistance from a person connected with it at
any time.

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

(a) the acquisition, creation, development or exploitation of the
30asset, or

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

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

(10) “Relevant UK activities” means activities carried on in the United
35Kingdom—

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

(b) by companies connected with the CFC under arrangements
which would not, it is reasonable to suppose, be entered into
40by companies not connected with each other.

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

(a) non-trading finance profits;

(b) property business profits.

371CB Does Chapter 5 apply?

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

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

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

(a) 10which is carried on by the CFC, and

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

(4) Profits fall within this subsection so far as they arise from the
investment of funds held by the CFC for the purposes of a UK
15property business or overseas property business carried on by the
CFC.

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

(a) held only or mainly because of a prohibition or restriction on
20the CFC paying dividends or making other distributions
imposed under—

(i) the law of the territory in which the CFC is
incorporated or formed,

(ii) the articles of association or other document
25regulating the CFC, or

(iii) any arrangement entered into by or in relation to the
CFC,

(b) held with a view to paying dividends or making other
distributions at a time after the end of the relevant 12 month
30period,

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

(d) held with a view to acquiring, developing or otherwise
investing in land at a time after the end of the relevant 12
35month period,

(e) held only or mainly for contingencies, or

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

(6) 40Subsection (5)(a) does not cover a prohibition or restriction which
ceases to have effect before the end of the relevant 12 month period.

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

(8) In the case of a chargeable company which makes a claim under
45Chapter 9, in this section and Chapter 5 references to the CFC’s non-
trading finance profits are to those profits excluding also the CFC’s
qualifying loan relationship profits (as defined in Chapter 9).

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

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

(a) the CFC has trading profits or property business profits (or
5both);

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

(2) 10Chapter 5 does not apply for the accounting period if the CFC’s non-
trading finance profits are no more than 5% of the relevant amount.

(3) “The relevant amount” is—

(a) if the requirement of subsection (1)(a) is met, the total of the
CFC’s trading profits and property business profits
15determined before deduction of interest or any tax or duty
imposed under the law of any territory,

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

(c) if both those requirements are met, the sum of the totals given
20by paragraphs (a) and (b).

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

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

(b) at any time during the accounting period, a 51% subsidiary of
25the CFC (“the CFC subsidiary”) is also a CFC, and

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

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

(6) 30If—

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

(b) 35by virtue of this section or section 371CD, Chapter 5 does not
apply (in the case of the CFC subsidiary) for the relevant
period,

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

(7) 40If—

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

(b) by virtue of this section or section 371CD, Chapter 5 does not
45apply (in the case of the CFC subsidiary) for the relevant
period,

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

(8) In this section references to the CFC’s trading profits are to those
5profits excluding any of them which pass through the CFC charge
gateway for the accounting period.

(9) “Exempt distribution income” means any dividends or other
distributions which are not brought into account in determining the
CFC’s assumed total profits on the basis that they would be exempt
10for the purposes of Part 9A of CTA 2009 (company distributions).

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

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

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

(a) the requirements of section 371CC(1)(a) and (b) are both met,
15but

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

(2) Chapter 5 does not apply for the accounting period if the CFC’s
20adjusted non-trading finance profits are no more than 5% of the total
of the CFC’s exempt distribution income (as defined in section
371CC(9)).

(3) The CFC’s “adjusted non-trading finance profits” are its non-trading
finance profits excluding any profits falling within section 371CB(3)
25or (4).

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

(5) The CFC subsidiary’s relevant non-trading finance profits are also to
30be added to the CFC’s adjusted non-trading finance profits for the
purposes of subsection (2) above.

371CE Does Chapter 6 apply?

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

(a) 35the CFC has trading finance profits, and

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

(2) The CFC’s trading finance profits are to be treated for the purposes
40of this Part as if they were non-trading finance profits (and,
accordingly, Chapter 6 cannot apply for the accounting period) if—

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

(b) a notice is given to an officer of Revenue and Customs
45requesting that the CFC’s trading finance profits be treated as
if they were non-trading finance profits.

(3) Profits treated as non-trading finance profits under subsection (2) are
not to be taken to fall within section 371CB(3) or (4).

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

(5) For this purpose, section 337(1) (definition of “the worldwide
group”) applies with the omission of paragraph (a).

(6) A notice under subsection (2)(b)—

(a) may be given only by a company or companies determined
10under subsection (7) or (8), and

(b) must be given—

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

(ii) within such longer period as an officer of Revenue
15and Customs may allow.

(7) A company may give a notice if—

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

(b) 20the percentage of the CFC’s chargeable profits which would
be apportioned to the company at step 3 in section 371BC(1)
would represent more than half of X%.

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

(a) the companies would all be chargeable companies were
25section 371BC (charging the CFC charge) to apply in relation
to the accounting period, and

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

(9) 30In subsections (7) and (8) “X%” means the total percentage of the
CFC’s chargeable profits which would be apportioned to chargeable
companies at step 3 in section 371BC(1) were section 371BC
(charging the CFC charge) to apply in relation to the accounting
period.

371CF 35 Does Chapter 7 apply?

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

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

(b) 40the CFC’s assumed total profits include amounts falling
within subsection (2).

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

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

(i) 45a UK resident company connected with the CFC, or

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

(b) a contract of insurance which—

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

(ii) is linked (directly or indirectly) to the provision of
goods or services to the UK resident person by a UK
5connected company.

(3) In subsection (2)(b)(ii)—

• “services” does not include services provided as part of
  insurance business, and

• “UK connected company” means—

  (a)

  10a UK resident company connected with the CFC, or

  (b)

  a non-UK resident company connected with the CFC
  acting through a UK permanent establishment.

371CG Does Chapter 8 apply?

(1) Chapter 8 (solo consolidation) applies for a CFC’s accounting period
15if (and only if) condition A or B is met.

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

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

(b) 20the CFC’s parent undertaking in relation to that waiver is a
UK resident company.

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

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

(b) 25the UK resident bank must meet requirements of the FSA
Handbook in relation to its capital,

(c) any fall in the value of the shares held in the CFC would be
(wholly or mainly) ignored for the purpose of determining if
the UK resident bank meets those requirements of the FSA
30Handbook, and

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

(4) In this section—

• 35“the FSA Handbook” means the Handbook of Rules and
  Guidance made by the Financial Services Authority (as that
  Handbook has effect from time to time), and

• “UK resident bank” means a UK resident person carrying on
  banking business.

(5) 40The Treasury may by regulations amend this Chapter or Chapter 8
as they consider appropriate to take account of—

(a) any changes to the FSA Handbook, or

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

(6) 45“Relevant document” means—

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

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

Chapter 4

The CFC charge gateway: profits attributable to UK activities

371DA 5 Introduction to Chapter

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

(2) In this Chapter references to the CFC’s assumed total profits are to
10those profits excluding its non-trading finance profits and property
business profits (if any).

(3) For the purposes of this Chapter—

(a) “the OECD Report” means the Report on the Attribution of
Profits to Permanent Establishments of the Organisation for
15Economic Co-operation and Development (“OECD”) dated
22 July 2010,

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

(c) “the CFC group” means the CFC taken together with the
20companies with which it is connected as those companies
may change from time to time,

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

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

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

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

(i) 30by the CFC, otherwise than through a UK permanent
establishment, or

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

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

(4) The Treasury may by regulations amend this Chapter as they
35consider appropriate to take account of any relevant document
published by OECD from time to time.

(5) “Relevant document” means—

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

(b) 40a document which replaces, updates or supplements a
document falling within paragraph (a) or a document which
is a relevant document by virtue of this paragraph.

371DB The steps

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

45The steps are to be taken in accordance with the principles set out in
the OECD Report (so far as relevant).

Step 1

Identify the assets which the CFC has or has had, and the risks which
the CFC bears or has borne, and from which amounts included in the
50CFC’s assumed total profits have arisen.

Step 2

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

Step 3

55Identify the SPFs carried out by the CFC group which are relevant
to—

• the economic ownership of the assets included in the relevant
  assets and risks, or

• the assumption and management of the risks included in the
  60relevant assets and risks.

Step 4

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

Step 5

65Assume that the UK SPFs determined at step 4 are carried out by a
permanent establishment which the CFC has in the United Kingdom
and, accordingly, determine the extent to which the assets and risks
included in the relevant assets and risks would be attributed to the
permanent establishment.

70Step 6

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

Step 7

Re-determine the CFC’s assumed total profits on the basis that the
75CFC—

• does not hold, or has not held, the assets included in the
  relevant assets and risks, and

• does not bear, or has not borne, the risks included in the
  relevant assets and risks,

80so far as they would be attributed to the permanent establishment
mentioned at step 5.

Step 8