A history of EU law and CFC regimes [Archived]
Produced in partnership with Kelly Stricklin-Coutinho
A history of EU law and CFC regimes [Archived]

The following Tax guidance note Produced in partnership with Kelly Stricklin-Coutinho provides comprehensive and up to date legal information covering:

  • A history of EU law and CFC regimes [Archived]
  • What are controlled foreign company rules?
  • The UK’s CFC rules
  • The interaction of EU law with CFC rules
  • Cadbury Schweppes
  • Other cases dealing with the UK CFC regime and compatibility with EU rules
  • Changes to the UK’s CFC regime

ARCHIVED: This Practice Note has been archived and is not maintained.

This Practice Note explains:

  1. the general concept of controlled foreign company (CFC) rules

  2. the UK’s CFC regime, prior to its reform (ie from 2013)

  3. the application of EU rules to the UK’s CFC regime through the cases of Cadbury Schweppes, Vodafone 2 and the CFC and dividend GLO, and

  4. how EU principles might apply to the UK’s new CFC rules

What are controlled foreign company rules?

CFC rules are anti-avoidance rules implemented by countries which are concerned about domestic companies artificially shifting profits to companies in low tax jurisdictions.

Countries protect against that risk by introducing CFC rules that tend to require:

  1. a computation of the profits of a CFC for an accounting period, broadly on the lines of their domestic corporation tax profits (usually with relief for foreign tax paid), and

  2. an apportionment of the profits among those with an interest in the company

The UK’s CFC rules

The UK first introduced the CFC rules in Finance Act 1984 and they remained in a very similar structure since that time, albeit with some amendments and variations until the fundamental overhaul explained below. Those rules were later contained in the Income and Corporation Taxes Act 1988 (ICTA 1988).

With effect from accounting periods of CFCs commencing on