Income and Corporation Taxes Act 1988

3 (1) Subject to sub-paragraphs (2) and (5) below, for the purposes of this Part of this Schedule, the available profits of a controlled foreign company for any accounting period shall be ascertained by—

(a) determining what would be the relevant profits of that period for the purposes of section 799 if a dividend were paid for that period; and

(b) deducting so much of those relevant profits as consists of an excess of capital profits over capital losses.

(2) If, for any accounting period of the controlled foreign company which is of less than 12 months duration, the available profits, as ascertained under sub-paragraph (1) above, are less than the chargeable profits (determined on the additional assumptions in section 750(3)(a)) then, if the Board so declare, for the purposes of this Part of this Schedule the available profits for the accounting period shall be those chargeable profits.

(3) The definition of “profits” in section 747(6)(b) does not apply to the reference in sub-paragraph (1)(a) above to relevant profits for the purposes of section 799.

(4) In sub-paragraph (1)(b) above “capital profits” means gains—

(a) which accrue on the disposal of assets; and

(b) which, if the company were within the charge to corporation tax in respect of the activities giving rise to those disposals, would not be taken into account as receipts in computing the company’s income or profits or gains or losses for the purposes of the Income Tax Acts;

and the expression “capital losses” shall be construed accordingly.

[F1 (4A) Subject to sub-paragraph (5) below, for the purposes of this Part of this Schedule, the net chargeable profits of a controlled foreign company for any accounting period are—

(a) its chargeable profits for that period, less

(b) the amount (if any) which, if a direction were given under section 747(1) in respect of the period, would be the company’s unrestricted creditable tax for that period;

and for the purposes of this sub-paragraph “unrestricted creditable tax” in relation to a company’s accounting period means the amount which would be its creditable tax for that period if the reference in section 751(6)(a) to Part XVIII did not include section 797]

(5) In any case where—

(a) a controlled foreign company pays a dividend for any period out of specified profits, and

(b) those profits represent dividends received by the company, directly or indirectly, from another controlled foreign company,

so much of those specified profits as is equal to the dividend referred to in paragraph (a) above shall be left out of account in determining, for the purposes of this Part of this Schedule, the available profits [F2 or, where the company is not a trading company, the chargeable profits] of the controlled foreign company referred to in that paragraph for any accounting period.

Textual Amendments

F1 Sch. 25 para. 3(4A) inserted (with application in accordance with s. 134(5) of the amending Act) by Finance Act 1994 (c. 9), s. 134(4)(a)

F2 Words in Sch. 25 para. 3(5) inserted (with application in accordance with s. 134(5) of the amending Act) by Finance Act 1994 (c. 9), s. 134(4)(b)