Introduction to CFCs

Produced by Tolley

The following Corporation Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Introduction to CFCs
  • Introduction
  • CFCs ― basic principles
  • The CFC gateway
  • CFC exemptions
  • The low profits exemption
  • The low profit margin exemption
  • The excluded territories exemption
  • The high tax exemption
  • The exempt period exemption
  • More...

Introduction to CFCs


The controlled foreign company (CFC) rules as outlined in this note apply to accounting periods beginning on or after 1 January 2013, the date upon which significant changes made by Finance Act 2012 became effective.

From this date, the CFC rules also apply to foreign branches in respect of which an exemption election has been made. See the Foreign ‘branch’ exemption ― overview guidance note for more details.

The rules are complex and this guidance note outlines the main provisions only. More detailed commentary can be found in Simon’s Taxes D4.401.

HMRC guidance on the CFC regime is available at INTM190000 onwards.

CFCs ― basic principles

A CFC is any company which is resident outside the UK, but ‘controlled’ by a UK resident person or persons. This can include companies and individuals. UK resident persons control a company if they have the power to secure that the affairs of the company are conducted in accordance with their wishes, or if they are entitled to more than 50% of the proceeds on a disposal or a winding up. The definition of control is extended to include certain structures where UK resident persons hold 40% of the rights in the overseas company.

From 1 January 2019, the definition of control is further extended to the situation where a UK company together with its associated enterprises holds more than a 50% investment in the non-resident company.

There is a targeted anti-avoidance rule which applies where artificial steps have been taken to avoid a subsidiary being controlled from the UK.

The profits of the CFC are then attributed to the UK resident companies (ie the companies only and not the individuals which may be included in the group of UK resident persons for the purposes of the control test) in accordance with their holding of ordinary shares in the CFC (whether direct or indirect). These profits are then subject to an amount of tax equivalent to corporation tax, with a credit for

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