This Practice Note deals with the meaning of company and accounting period for the purposes of the controlled foreign company (CFC) rules. The definition of company determines what entities can be CFCs and the definition of an accounting period determines the period over which a CFC charge can arise and other measures are tested. As a result, they are important concepts to understand. Meaning of company in the CFC context Other than in respect of cell companies, as explained below, 'company' in a CFC context has the broad Corporation Tax Acts meaning of any body corporate or unincorporated association (which is discussed in more detail in Practice Note: What is the basis of corporation tax?—Who is liable to pay corporation tax?). The term ‘body corporate’ is not defined in UK tax legislation and takes its ordinary meaning. Significant indicators or characteristics of a body corporate are that it has: • legal personality in itself (ie it can sue and be sued, hold property and transact) • legal personality distinct from the legal persons who compose

A company is a controlled foreign company (a CFC) if it is: • a non-UK resident company, and • controlled by persons resident in the UK. For the meaning of control, see Practice Note: CFC rules—definition of control There are two elements to the residence question: • whether the persons in question (the potential CFC and the controllers) are resident in the UK or not, and • if a potential CFC is resident outside the UK, in which other territory it is resident Once it has been identified that a company is not UK resident (and therefore a CFC, assuming it is controlled by UK resident persons), it is still important to identify a single territory in which the CFC is resident for the purposes of: • determining the amount of creditable tax of the CFC • the CFC tax exemption, and • the excluded territories exemption This Practice Note explains the rules for determining: • whether the potential CFC and its controllers are resident in the UK • if

This Practice Note explains the excluded territories exemption from a charge under the controlled foreign company (CFC) rules. Even if a company is a CFC for an accounting period, a CFC tax charge will only arise if: • the CFC has chargeable profits that pass through the gateways, and • none of the exemptions from the CFC rules apply There are two types of exemption: • entity level exemptions—these exclude the CFC from the CFC rules altogether for that accounting period. The relevant exemptions are: ◦ the excluded territories exemption, which is explained in this Practice Note ◦ the exempt period exemption ◦ the low profits exemption ◦ the low profit margin exemption ◦ the tax exemption, and • finance profit exemptions—these exclude some or all of the profits of certain financing activities from the CFC rules The excluded territories exemption A CFC is exempt for an accounting period if it meets all four conditions: • residence condition—it is resident in an excluded territory for that accounting period • income

This Practice Note deals with the exempt period exemption from a charge under the controlled foreign company (CFC) rules. Even if a company is a CFC for an accounting period, a CFC tax charge will only arise if: • the CFC has chargeable profits that pass through the gateways, and • none of the exemptions from the CFC rules apply There are two types of exemption: • entity level exemptions—these exclude the CFC from the CFC rules altogether for that accounting period. The relevant exemptions are: ◦ the exempt period exemption, which is explained in this Practice Note ◦ the excluded territories exemption ◦ the low profits exemption ◦ the low profit margin exemption, and ◦ the tax exemption, and • finance profit exemptions—these exclude some or all of the profits of certain financing activities from the CFC rules The exemptions are intended to simplify the compliance burden on businesses in circumstances where there is limited risk of a diversion of profits from the UK. The exempt period exemption The

This Practice Note explains the low profits margin exemption from a charge under the controlled foreign company (CFC) rules. Even if a company is a CFC for an accounting period, a CFC tax charge will only arise if: • the CFC has chargeable profits that pass through the gateway, and • none of the exemptions from the CFC rules apply There are two types of exemption: • entity level exemptions—these exclude the CFC from the CFC rules altogether for that accounting period and are: ◦ the low profit margin exemption, which is explained further in this Practice Note ◦ the exempt period exemption ◦ the excluded territories exemption ◦ the low profits exemption, and ◦ the tax exemption, and • finance profit exemptions—these exclude some or all of the profits of certain financing activities from the CFC rules The low profit margin exemption HMRC states that the low profit margin exemption is aimed at CFCs that perform substantial volume low value added functions outside the UK, such

This Practice Note explains the low profits exemption from a charge under the controlled foreign company (CFC) rules. Even if a company is a CFC for an accounting period, a CFC tax charge will only arise if: • the CFC has chargeable profits that pass through the gateway, and • none of the exemptions from the CFC rules apply There are two types of exemption: • entity level exemptions—these exclude the CFC from the CFC rules altogether for that accounting period. The relevant exemptions are: ◦ the low profits exemption, which is explained further in this Practice Note ◦ the exempt period exemption ◦ the excluded territories exemption ◦ the low profit margin exemption, and ◦ the tax exemption, and • finance profit exemptions—these exclude some or all of the profits of certain financing activities from the CFC rules The low profits exemption A CFC can obtain the benefit of the low profits exemption for an accounting period if it meets one of the following four conditions: • its accounting profits are no

This Practice Note explains the ‘not subject to a lower level of tax’ exemption from a charge under the controlled foreign company (CFC) rules. Even if a company is a CFC for an accounting period, a CFC tax charge will only arise if: • the CFC has chargeable profits that pass through the gateway, and • none of the exemptions from the CFC rules apply There are two types of exemption: • entity level exemptions—these exclude the CFC from the CFC rules altogether for a particular accounting period and are: ◦ the exempt period exemption ◦ the excluded territories exemption ◦ the low profits exemption ◦ the low profit margin exemption, and ◦ the tax exemption, which is explained in this Practice Note, and • finance profits exemptions—these exclude some or all of the profits of certain financing activities from the CFC rules The tax exemption A company is exempt from the CFC rules under the tax exemption if: • the

This flowchart is a typical timeline, showing: • which conditions need to be complied with, and • at what time, or over what period they need to be complied with in

This Practice Note deals with the initial gateway under the controlled foreign company (CFC) rules. If a company is a CFC for an accounting period, and none of the entity level exemptions apply, the CFC gateways operate to determine whether, and to what extent, the CFC has chargeable profits. It is likely that the entity level exemptions would be assessed before considering whether the CFC has chargeable profits, because a number of them are simpler to apply and can exclude the entity altogether. A CFC’s chargeable profits are its assumed taxable total profits as determined on the basis that: • the assumed total profits of the CFC are limited to those that pass through the CFC charge gateway, and • the amounts relieved against the assumed total profits are appropriately reduced to reflect that limitation For more information about how to calculate a CFC charge, see Practice Note: CFC rules—calculating the CFC tax charge. Meaning of gateways The meaning of 'gateway' in the CFC rules can be a little confusing. The main principle to remember

This Practice Note explains whether, and to what extent, a person holds an interest and a relevant interest in a controlled foreign company (CFC). As further explained in Practice Note: CFC rules—calculating the CFC tax charge it is necessary to identify: • those persons who have an interest in the CFC, and • among those who have an interest, those who have a relevant interest in the CFC in order to be able to apportion the chargeable profits and creditable tax of the CFC and calculate any CFC tax charge due. Who holds an interest in a CFC? A person (which includes any legal or natural person, eg both individuals and companies) is treated as holding an interest in a CFC if that person: • has or is entitled to acquire: ◦ share capital or voting rights in the CFC, or ◦ a right to receive or participate in distributions (which has its ordinary corporation tax meaning, for which see Practice Note: Scope of distributions for tax purposes) of the CFC • is entitled,

This Practice Note deals with the corporation tax assumptions that must be made in calculating: • the assumed taxable total profits and assumed total profits of the CFC • the corresponding UK tax in the tax exemption, and • the creditable tax of the CFC As a result they are vital to the application of the CFC rules and the calculation of the CFC charge. The corporation tax assumptions The assumptions are split into two types: • assumptions about the CFC itself, and • assumptions about the application of the corporation tax rules to the CFC The assumptions are that: • the CFC is: ◦ resident in the UK ◦ not a close company, and ◦ not a member of a group or consortium, and • the corporation tax rules will apply subject to special rules to deal with: ◦ the claims and elections that the CFC is deemed to have made ◦ intangible fixed assets ◦ capital allowances on plant and machinery ◦ the carried forward loss restriction ◦ the corporate interest restriction ◦ certain

The Financial Conduct Authority (FCA) has fined Cypriot contracts for difference (CFD) firm Forex TB Limited (FXTB) £276,100 for failing to treat its customers fairly, and for providing investment advice without being authorised to do so. The FCA found FXTB pressured customers to put their money at risk through CFD trading, even encouraging them to borrow money from friends or family in some cases. The FCA would have imposed a fine of £1.215m, but FXTB was able to demonstrate that this would have caused it serious financial hardship.