Income and Corporation Taxes Act 1988 (c. 1)

PART XVII U.K. TAX AVOIDANCE

CHAPTER IV U.K. CONTROLLED FOREIGN COMPANIES

Modifications etc. (not altering text)

C1 Pt. XVII Ch. IV (ss. 747-756) modified (27.7.1993) by 1993 c. 34, s. 119(3)

C2 Pt. 17 Ch. 4 modified (10.6.1999) by The Non-resident Companies (General Insurance Business) Regulations 1999 (S.I. 1999/1408), regs. 3-6

C3 Pt. 17 Ch. 4 modified (20.7.2005) by Finance (No. 2) Act 2005 (c. 22), s. 45(5)(6)

747 Imputation of chargeable profits and creditable tax of controlled foreign companies U.K.

M1 (1) If F1 . . . in any accounting period a company—

(a) is resident outside the United Kingdom, and

(b) is controlled by persons resident in the United Kingdom, and

(c) is subject to a lower level of taxation in the territory in which it is resident,

F2 . . . the provisions of this Chapter shall apply in relation to that accounting period.

[F3 (1A) A company which would not, apart from this subsection, fall to be regarded as controlled by persons resident in the United Kingdom shall be taken for the purposes of this Chapter to be so controlled if—

(a) there are two persons who, taken together, control the company;

(b) one of those persons is resident in the United Kingdom and is a person in whose case the 40 per cent test in section 755D(3) is satisfied; and

(c) the other is a person in whose case the 40 per cent test in section 755D(4) is satisfied.]

[F4 (1B) In determining, for the purposes of any provision of this Chapter except subsection (1)(a) above, whether a company is a person resident in the United Kingdom, section 249 of the Finance Act 1994 (under which a company is treated as non-resident if it is so treated for double taxation relief purposes) shall be disregarded.]

(2) A company which falls within paragraphs (a) to (c) of subsection (1) above is in this Chapter referred to as a “controlled foreign company”.

(3) [F5 Subject to section 748, where] the provisions of this Chapter apply in relation to an accounting period of a controlled foreign company, the chargeable profits of that company for that period and its creditable tax (if any) for that period shall each be apportioned in accordance with section 752 among the persons (whether resident in the United Kingdom or not) who had an interest in that company at any time during that accounting period.

(4) Where, on such an apportionment of a controlled foreign company’s chargeable profits for an accounting period as is referred to in subsection (3) above, an amount of those profits is apportioned to a company resident in the United Kingdom then, subject to subsection (5) below—

(a) a sum equal to corporation tax at the appropriate rate on that apportioned amount of profits, less the portion of the controlled foreign company’s creditable tax for that period (if any) which is apportioned to the resident company, shall be [F6 chargeable on] the resident company as if it were an amount of corporation tax chargeable on that company; and

(b) if, apart from this paragraph, section 739 would deem any sum forming part of the company’s chargeable profits for that accounting period to be the income of an individual for the purposes of the Income Tax Acts, that section shall not apply to such portion of that sum as corresponds to the portion of those chargeable profits which is apportioned to companies which are resident in the United Kingdom and which, by virtue of paragraph (a) above, have a liability to tax in respect thereof;

and for the purposes of paragraph (a) above “the appropriate rate” means the rate of corporation tax applicable to profits of that accounting period of the resident company in which ends the accounting period of the controlled foreign company [F7 which is mentioned in subsection (1) above] or, if there is more than one such rate, the average rate over the whole of that accounting period of the resident company.

[F8 (4A) F9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4B) F9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

(5) Tax shall not, by virtue of subsection (4) above, be [F10 chargeable on] a company resident in the United Kingdom unless, on the apportionment in question, the aggregate of—

(a) the amount of the controlled foreign company’s chargeable profits for the accounting period in question which is apportioned to the resident company, and

(b) any amounts of those chargeable profits which are apportioned to persons who are connected or associated with the resident company,

is at least [F11 25 per cent.] of the total of those chargeable profits.

(6) In relation to a company resident outside the United Kingdom—

(a) any reference in this Chapter to its chargeable profits for an accounting period is a reference to the amount which, on the assumptions in Schedule 24, would be the amount of the total profits of the company for that period on which, after allowing for any deductions available against those profits, corporation tax would be chargeable; and

(b) any reference in this Chapter to profits does not include a reference to chargeable gains but otherwise (except as provided by paragraph (a) above) has the same meaning as it has for the purposes of corporation tax.

Textual Amendments

F1 Words in s. 747(1) repealed (with effect in accordance with Sch. 17 para. 37 of the repealing Act) by Finance Act 1998 (c. 36), Sch. 17 para. 1(2)(a), Sch. 27 Pt. 3(27), Note; S.I. 1998/3173, art. 2

F2 Words in s. 747(1) repealed (with effect in accordance with Sch. 17 para. 37 of the repealing Act) by Finance Act 1998 (c. 36), Sch. 17 para. 1(2)(b), Sch. 27 Pt. 3(27), Note; S.I. 1998/3173, art. 2

F3 S. 747(1A) inserted (21.3.2000) by Finance Act 2000 (c. 17), Sch. 31 paras. 3, 9(1)

F4 S. 747(1B) inserted (1.4.2002) by Finance Act 2002 (c. 23), s. 90(1)(2)(a) (with s. 90(2)(b))

F5 Words in s. 747(3) substituted (with effect in accordance with Sch. 17 para. 37 of the amending Act) by Finance Act 1998 (c. 36), Sch. 17 para. 1(3); S.I. 1998/3173, art. 2

F6 Words in s. 747(4)(a) substituted (with effect in accordance with Sch. 17 para. 37 of the amending Act) by Finance Act 1998 (c. 36), Sch. 17 para. 1(4)(a); S.I. 1998/3173, art. 2

F7 Words in s. 747(4) substituted (with effect in accordance with Sch. 17 para. 37 of the amending Act) by Finance Act 1998 (c. 36), Sch. 17 para. 1(4)(b); S.I. 1998/3173, art. 2

F8 S. 747(4A)(4B) inserted (1.5.1995) by Finance Act 1995 (c. 4), Sch. 25 para. 3

F9 S. 747(4A)(4B) repealed (with effect in accordance with Sch. 4 para. 24(2) of the repealing Act) by Finance Act 2005 (c. 7), Sch. 11 Pt. 2(6), Note

F10 Words in s. 747(5) substituted (with effect in accordance with Sch. 17 para. 37 of the amending Act) by Finance Act 1998 (c. 36), Sch. 17 para. 1(5)(a); S.I. 1998/3173, art. 2

F11 Words in s. 747(5) substituted (with effect in accordance with Sch. 17 para. 37 of the amending Act) by Finance Act 1998 (c. 36), Sch. 17 para. 1(5)(b); S.I. 1998/3173, art. 2

Modifications etc. (not altering text)

C4 S. 747 restricted (28.7.2000) by Finance Act 2000 (c. 17), Sch. 22 para. 54(1)

C5 S. 747 modified (with effect in accordance with Sch. 29 Pt. 14 of the modifying Act) by Finance Act 2002 (c. 23), Sch. 29 para. 116

C6 S. 747A(4)(a) restricted (27.7.1999) by Commonwealth Development Corporation Act 1999 (c. 20), Sch. 3 paras. 1, 2(2); S.I. 2003/1282, art. 2

Marginal Citations

M1 Source—1984 s.82