Taxation (International and Other Provisions) Act 2010

[F1 Chapter 19 U.K. Assumed taxable total profits, assumed total profits and the corporation tax assumptions

Textual Amendments

F1 Pt. 9A inserted (17.7.2012) by Finance Act 2012 (c. 14), Sch. 20 para. 1 (with ss. 56-58)

Overview U.K.

371SA Overview of Chapter U.K.

This Chapter explains the concepts of “assumed taxable total profits” and “assumed total profits” (see section 371SB) and “the corporation tax assumptions” (see section 371SC) which are referred to in this Part.

“Assumed taxable total profits” and “assumed total profits” U.K.

371SB What are “assumed taxable total profits” and “assumed total profits”? U.K.

(1) For the purposes of this Part a CFC's “assumed taxable total profits” for an accounting period are what, applying the corporation tax assumptions, would be the CFC's taxable total profits of the accounting period for corporation tax purposes.

(2) “Taxable total profits” has the meaning given by section 4(2) of CTA 2010 (calculation of taxable total profits).

(3) But, for this purpose, in section 4(3) of CTA 2010—

(a) step 1 is to be applied subject to subsections (4) to (6) below, and

(b) step 2 is to be ignored.

(4) Any income which accrues during the accounting period to the trustees of a settlement in relation to which the CFC is a settlor or a beneficiary is to be added to the income determined at step 1.

(5) If there is more than one settlor or beneficiary in relation to the settlement, the income is to be apportioned between the CFC and the other settlors or beneficiaries on a just and reasonable basis.

(6) If by virtue of subsection (4) any income (“the settlement income”) is added to the income determined at step 1, any dividend or other distribution which derives from the settlement income is to be excluded from the income determined at step 1.

(7) Subsection (8) applies if there is any income which, by virtue of subsection (4), would (apart from subsection (8)) be included in—

(a) the chargeable profits for an accounting period of a CFC which is a beneficiary in relation to a settlement, and

(b) the chargeable profits for an accounting period of a CFC which is a settlor in relation to the settlement.

(8) If the CFC charge is charged in relation to the beneficiary's accounting period, the income is not to be included in the settlor's chargeable profits.

(9) For the purposes of this Part a CFC's “assumed total profits” for an accounting period are its assumed taxable total profits for the period before taking step 2 in section 4(2) of CTA 2010.

“The corporation tax assumptions” U.K.

371SC What are “the corporation tax assumptions”? U.K.

(1) In this Part “the corporation tax assumptions” means the assumptions set out in sections 371SD to 371SR.

(2) The corporation tax assumptions are to be applied in determining the following for an accounting period (“the relevant accounting period”) of a CFC—

(a) the CFC's assumed taxable total profits in accordance with section 371SB(1),

(b) the corresponding UK tax in accordance with section 371NE, and

(c) the CFC's creditable tax in accordance with Chapter 16.

371SD UK residence etc U.K.

(1) Assume—

(a) that the CFC is UK resident at all times during the relevant accounting period,

(b) if the relevant accounting period is not the CFC's first accounting period, that the CFC has been UK resident from the beginning of the CFC's first accounting period, and

(c) except where the CFC ceases to be a CFC at the end of the relevant accounting period, that the CFC will continue to be UK resident until it ceases to be a CFC,

and that the CFC is, has been and will continue to be within the charge to corporation tax, and that its accounting periods (as determined in accordance with section 371VB) are accounting periods for corporation tax purposes, accordingly.

(2) Subsection (1)—

(a) does not require it to be assumed that there is any change in the place or places at which the CFC carries on its activities, and

(b) requires (in particular) that it be assumed that the CFC does not get the benefit of section 1279 of CTA 2009 (exemption for profits from securities free of tax to residents abroad).

(3) If the CFC is (actually) UK resident immediately before the beginning of its first accounting period, assume that its UK residence from the beginning of that accounting period (as assumed in accordance with subsection (1)) is not continuous with its (actual) UK residence before the beginning of that accounting period.

(4) Except where the relevant accounting period is the CFC's first accounting period, assume that a determination of the CFC's assumed taxable total profits has been made for all previous accounting periods back to (and including) the CFC's first accounting period.

(5) Subsection (4) applies (in particular) for the purpose of applying any relief which is relevant to two or more accounting periods.

(6) In this section references to the CFC's first accounting period are to the CFC's accounting period which begins when it becomes a CFC.

371SE Close company U.K.

Assume that the CFC is not a close company.

371SF Claims and elections U.K.

(1) In relation to any relief under the Corporation Tax Acts which is dependent upon the making of a claim or election, assume the CFC—

(a) to have made that claim or election which would give the maximum amount of relief, and

(b) to have made that claim or election within any applicable time limit.

(2) Subsection (1) does not cover (so far as it would otherwise do so) a claim or election under—

(a) section 18A of CTA 2009 (exemption for profits or losses of foreign permanent establishments),

(b) section 1275 of CTA 2009 (relief for unremittable income),

(c) section 9A of CTA 2010 (designated currency of a UK resident investment company), or

(d) regulations made under paragraph 16 of Schedule 8 to FA 2006 (election for lease to be treated as long funding lease).

(3) Subsection (1) is also subject to section 371SK(5).

371SG Disapplication of assumption in section 371SF(1) U.K.

(1) This section applies if a notice is given to an officer of Revenue and Customs requesting that the CFC be assumed—

(a) not to have made for the relevant accounting period a specified claim or election otherwise covered by section 371SF(1),

(b) to have made for the relevant accounting period a specified claim or election, being different from one assumed by section 371SF(1) but being one which (subject to compliance with any applicable time limit) could have been made by a company within the charge to corporation tax, or

(c) to have disclaimed or required the postponement, in whole or in part, of a specified allowance for the relevant accounting period if (subject to compliance with any applicable time limit) a company within the charge to corporation tax could have disclaimed the allowance or required such a postponement (as the case may be).

(2) In determining for the purposes of section 371BA(3) the CFC's assumed total profits and the amounts to be relieved against those profits at step 2 in section 4(2) of CTA 2010—

(a) the assumption set out in the notice under subsection (1) is to be applied so far as relevant, and

(b) the assumption set out in section 371SF(1) is to be disapplied to the extent necessary as a consequence.

(3) In determining the CFC's creditable tax—

(a) the assumption set out in the notice under subsection (1) is to be applied so far as relevant, and

(b) the assumption set out in section 371SF(1) is to be disapplied to the extent necessary as a consequence.

(4) The claims which may be specified in a notice under subsection (1) by virtue of paragraph (b) include claims under the provision mentioned in section 371SF(2)(b) or 371SK(5).

(5) A notice under subsection (1)—

(a) may be given only by a company or companies determined under subsection (6) or (7), and

(b) must be given—

(i) within 20 months after the end of the relevant accounting period, or

(ii) within such longer period as an officer of Revenue and Customs may allow.

(6) A company may give a notice if—

(a) the company would be a chargeable company were section 371BC (charging the CFC charge) to apply in relation to the relevant accounting period, and

(b) the percentage of the CFC's chargeable profits which would be apportioned to the company at step 3 in section 371BC(1) would represent more than half of X%.

(7) Two or more companies may together give a notice if—

(a) the companies would all be chargeable companies were section 371BC (charging the CFC charge) to apply in relation to the relevant accounting period, and

(b) the percentage of the CFC's chargeable profits which would be apportioned to the companies, taken together, at step 3 in section 371BC(1) would represent more than half of X%.

(8) In subsections (6) and (7) “X%” means the total percentage of the CFC's chargeable profits which would be apportioned to chargeable companies at step 3 in section 371BC(1) were section 371BC (charging the CFC charge) to apply in relation to the relevant accounting period.

371SH Elections under section 9A of CTA 2010 U.K.

(1) This section applies if—

(a) during the relevant accounting period or any earlier accounting period of the CFC, a notice is given to an officer of Revenue and Customs requesting that the CFC be assumed to have made an election under section 9A of CTA 2010 (designated currency of a UK resident investment company) in the form specified in the notice, and

(b) the time at which the notice is given is a time at which, applying the corporation tax assumptions apart from this section, the CFC would have been able to make an election under that section in the form specified in the notice (see, in particular, section 9A(2)).

(2) Assume—

(a) that an election under section 9A of CTA 2010 has been made by the CFC in the form specified in the notice under subsection (1) at the time in question, and

(b) that, accordingly, sections 9A and 9B of that Act apply to determine the effect (if any) of that election.

(3) Subsection (2)(b) does not apply if—

(a) a notice is given to an officer of Revenue and Customs revoking the notice under subsection (1), and

(b) the time at which the notice revoking the notice under subsection (1) is given is a time at which, applying the corporation tax assumptions apart from this section and the assumption in subsection (2)(a), the CFC would have been able to revoke its assumed election under section 9A of CTA 2010.

(4) A notice under subsection (1) or (3) may be given only by a company or companies determined under subsection (5) or (6).

(5) A company may give a notice if—

(a) the company would be likely to be a chargeable company in relation to the applicable accounting period were section 371BC (charging the CFC charge) to apply in relation to that period, and

(b) the percentage of the CFC's chargeable profits for the applicable accounting period which would be likely to be apportioned to the company at step 3 in section 371BC(1) would represent more than half of X%.

(6) Two or more companies may together give a notice if—

(a) the companies would all be likely to be chargeable companies in relation to the applicable accounting period were section 371BC (charging the CFC charge) to apply in relation to that period, and

(b) the percentage of the CFC's chargeable profits for the applicable accounting period which would be likely to be apportioned to the companies, taken together, at step 3 in section 371BC(1) would represent more than half of X%.

(7) In subsections (5) and (6) (and this subsection)—

• “the applicable accounting period” means the accounting period of the CFC during which the notice under subsection (1) or (3) (as the case may be) is given, and

• “X%” means the total percentage of the CFC's chargeable profits for the applicable accounting period which would be likely to be apportioned to chargeable companies at step 3 in section 371BC(1) were section 371BC (charging the CFC charge) to apply in relation to the applicable accounting period.

371SI Modification of sections 6 and 7 of CTA 2010 U.K.

(1) This section applies if—

(a) in accordance with section 371SH, the CFC is assumed to have made an election under section 9A of CTA 2010, but

(b) applying the corporation tax assumptions apart from this section, section 6 or 7 of CTA 2010 could not apply in relation to the CFC for a period of account because the CFC does not prepare its accounts in accordance with generally accepted accounting practice.

(2) If sterling is the CFC's designated currency for the period of account, assume that section 6 of CTA 2010 applies in relation to the CFC as if the words “in accordance with generally accepted accounting practice” were—

(a) omitted from subsection (1A)(a), and

(b) in subsection (2), inserted after “its accounts in sterling”.

(3) If the CFC's designated currency for the period of account is a currency other than sterling, assume that section 7 of CTA 2010 applies in relation to the CFC as if the words “in accordance with generally accepted accounting practice” were—

(a) omitted from subsection (1A)(a), and

(b) at step 1 in subsection (2), inserted after “that currency”.

371SJ Elections for leases to be treated as long funding leases U.K.

(1) This section applies if—

(a) a notice is given to an officer of Revenue and Customs requesting that the CFC be assumed to have made a long funding lease election in the form specified in the notice, and

(b) the time at which the notice is given is a time at which, applying the corporation tax assumptions apart from this section, the CFC would have been able to make a long funding lease election in the form specified in the notice.

(2) Assume—

(a) that a long funding lease election has been made by the CFC in the form specified in the notice under subsection (1) at the time in question, and

(b) that, accordingly, regulation 2(5) of the 2007 Regulations applies to determine the effect (if any) of that election.

(3) Subsection (2)(b) does not apply if—

(a) a notice is given to an officer of Revenue and Customs withdrawing the notice under subsection (1), and

(b) the time at which the notice withdrawing the notice under subsection (1) is given is a time at which, applying the corporation tax assumptions apart from this section and the assumption in subsection (2)(a), the CFC would have been able to withdraw its assumed long funding lease election.

(4) A notice under subsection (1) or (3) may be given only by a company or companies determined under subsection (5) or (6).

(5) A company may give a notice if—

(a) the company would be likely to be a chargeable company in relation to the applicable accounting period were section 371BC (charging the CFC charge) to apply in relation to that period, and

(b) the percentage of the CFC's chargeable profits for the applicable accounting period which would be likely to be apportioned to the company at step 3 in section 371BC(1) would represent more than half of X%.

(6) Two or more companies may together give a notice if—

(a) the companies would all be likely to be chargeable companies in relation to the applicable accounting period were section 371BC (charging the CFC charge) to apply in relation to that period, and

(b) the percentage of the CFC's chargeable profits for the applicable accounting period which would be likely to be apportioned to the companies, taken together, at step 3 in section 371BC(1) would represent more than half of X%.

(7) In this section—

(a) “the 2007 Regulations” means the Long Funding Leases (Elections) Regulations 2007 (S.I. 2007/304),

(b) terms defined in the 2007 Regulations have the same meaning as they have in the 2007 Regulations,

(c) “the applicable accounting period” means the CFC's accounting period in which falls the effective date specified in the notice under subsection (1), and

(d) “X%” means the total percentage of the CFC's chargeable profits for the applicable accounting period which would be likely to be apportioned to chargeable companies at step 3 in section 371BC(1) were section 371BC (charging the CFC charge) to apply in relation to the applicable accounting period.

(8) The Treasury may by regulations amend this section as they consider appropriate to take account of any regulations made by them from time to time under paragraph 16 of Schedule 8 to FA 2006 (elections for leases to be treated as long funding leases).

371SK Intangible fixed assets U.K.

(1) This section applies for the purpose of applying Part 8 of CTA 2009 (intangible fixed assets).

(2) Assume that any intangible fixed asset acquired or created by the CFC before its first accounting period was acquired or created by the CFC at the beginning of that accounting period at a cost equal to its value recognised for accounting purposes at that time.

(3) In subsection (2) references to the CFC's first accounting period are to the CFC's accounting period which begins when it becomes a CFC.

(4) The assumption in subsection (2) does not affect the determination of the question whether Part 8 of CTA 2009 applies to an asset in accordance with section 882 of that Act (application of Part 8 to assets created or acquired on or after 1 April 2002).

(5) Assume also that the CFC—

(a) has not claimed any relief under Chapter 7 of Part 8 of CTA 2009 (roll-over relief in case of reinvestment), or

(b) made any provisional declaration of entitlement to such relief.

(6) Subsection (5) is subject to section 371SG(4).

[F2 371SKA Restrictions on certain deductions: deductions allowances U.K.

(1) This section applies for the purposes of—

(a) applying Part 7ZA of CTA 2010 (restrictions on obtaining certain deductions), and

(b) applying any provision of Part 7ZA of CTA 2010 for the purposes of Part 7A of that Act (restrictions on obtaining certain deductions: banking companies).

(2) Assume that each of the following is nil—

(a) the CFC's deductions allowance for the relevant accounting period,

(b) the CFC's trading profits deductions allowance for the relevant accounting period, and

(c) the CFC's non-trading profits deductions allowance for the relevant accounting period.

(3) But if section 269ZX of CTA 2010 (increase of deductions allowance [F3 in connection with onerous or impaired leases]) applies in relation to the relevant accounting period, the reference in subsection (2) to “nil” is to be read as a reference to an amount equal to the increase provided for by subsection (3) of that section.]

Textual Amendments

F2 S. 371SKA inserted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 180

F3 Words in s. 371SKA(3) substituted (with effect in accordance with s. 30(17)-(19) of the amending Act) by Finance Act 2022 (c. 3), s. 30(16)

371SL Group relief etc U.K.

(1) Assume that the CFC is neither a member of a group of companies nor a member of a consortium for the purposes of any provision of the Tax Acts.

(2) Subsection (3) applies if—

(a) under Part 5 of CTA 2010 (group relief) [F4 or Part 5A of that Act (group relief for carried-forward losses)] the CFC actually surrenders any relief which is allowed to another company by way of group relief [F5 or group relief for carried-forward losses], but

(b) applying the corporation tax assumptions apart from subsection (3), the relief would reduce the CFC's assumed taxable total profits for the relevant accounting period.

(3) Assume that the relief is to be ignored in determining the CFC's assumed taxable total profits for the relevant accounting period.

[F6 (4) This section is subject to section 371SLA (corporate interest restriction).]

Textual Amendments

F4 Words in s. 371SL(2)(a) inserted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 181(a)

F5 Words in s. 371SL(2)(a) inserted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 181(b)

F6 S. 371SL(4) inserted (with effect in accordance with Sch. 5 para. 25(1)(2) of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 5 para. 23(2)

[F7 371SLA Corporate interest restriction U.K.

(1) This section applies for the purpose of applying Part 10 (corporate interest restriction).

(2) Assume—

(a) that the CFC is a member of a worldwide group for a period of account of which it would be a member if section 371SL were ignored, and

(b) that the CFC is the only UK group company in the period (within the meaning of that Part).

(3) Assume also that Part 10 applies as if subsections (2) and (3) of section 392 (interest capacity of the group: the de minimis amount) were omitted.]

Textual Amendments

F7 S. 371SLA inserted (with effect in accordance with Sch. 5 para. 25(1)(2) of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 5 para. 23(3)

371SM Capital allowances U.K.

(1) This section applies if, before the CFC's first accounting period, the CFC incurred any capital expenditure on the provision of plant or machinery for the purposes of its trade.

(2) For the purposes of Part 2 of CAA 2001 (plant and machinery allowances) assume that the plant or machinery—

(a) was provided for purposes wholly other than those of the trade, and

(b) was not brought into use for the purposes of the trade until the beginning of the CFC's first accounting period,

and that section 13 of CAA 2001 (use for qualifying activity of plant or machinery provided for other purposes) applies accordingly.

(3) In this section references to the CFC's first accounting period are to the CFC's accounting period which begins when it becomes a CFC.

(4) This section is to be read as if it were contained in Part 2 of CAA 2001.

371SN Unremittable overseas income U.K.

(1) For the purposes of Part 18 of CTA 2009 (unremittable overseas income) assume that in section 1274(1)(a), (3) and (4) of that Act references to the United Kingdom are references to the relevant territories.

(2) “The relevant territories” means—

(a) the United Kingdom,

(b) the territory in which the CFC is taken to be resident for the relevant accounting period as determined under Chapter 20, and

(c) any other territory in which the CFC is in fact resident at any time during the relevant accounting period.

371SO Tax advantages U.K.

(1) This section applies if there is an arrangement or other conduct a purpose of which is to obtain a tax advantage within section 1139(2)(da) of CTA 2010 by obtaining by any means what would, applying the corporation tax assumptions apart from this section, be a tax advantage within section 1139(2)(a) to (d) of that Act.

(2) So far as they would not otherwise do so, the Corporation Tax Acts are to be assumed to apply in relation to the arrangement or other conduct in the same way as they would apply were the purpose of obtaining a tax advantage within section 1139(2)(da) of CTA 2010 the purpose of obtaining an actual tax advantage within section 1139(2)(a) to (d) of that Act by the means in question.

371SP Disguised interest: application of Chapter 2A of Part 6 of CTA 2009 U.K.

(1) This section applies if—

(a) applying the corporation tax assumptions apart from this section, Chapter 2A of Part 6 of CTA 2009 (disguised interest) would, but for section 486D(1) of that Act, apply in relation to a return produced for the CFC by an arrangement to which the CFC is a party, and

(b) it is reasonable to assume that the main purpose, or one of the main purposes, of the CFC being a party to the arrangement is to obtain a tax advantage within section 1139(2)(da) of CTA 2010 for any person by obtaining what would, applying the corporation tax assumptions apart from this section, be a relevant tax advantage in relation to the CFC.

(2) Chapter 2A of Part 6 of CTA 2009 is to be assumed to apply in relation to the return.

(3) In subsection (1)(b) the reference to obtaining what would be a relevant tax advantage is to be read in accordance with section 486D(4) of CTA 2009.

(4) This section is without prejudice to the generality of section 371SO.

371SQ Shares accounted for as liabilities: application of section 521C of CTA 2009 U.K.

(1) This section applies if—

(a) applying the corporation tax assumptions apart from this section, section 521C of CTA 2009 (shares accounted for as liabilities) would, but for section 521C(1)(f) of that Act, apply to a share held by the CFC, and

(b) the main purpose, or one of the main purposes, for which the CFC holds the share is to obtain a tax advantage within section 1139(2)(da) of CTA 2010 for any person by obtaining what would, applying the corporation tax assumptions apart from this section, be a relevant tax advantage in relation to the CFC.

(2) Section 521C of CTA 2009 is to be assumed to apply to the share.

(3) In subsection (1)(b) the reference to obtaining what would be a relevant tax advantage is to be read in accordance with section 521E(4) of CTA 2009.

(4) This section is without prejudice to the generality of section 371SO.

371SR Double taxation relief: [F8 countering effect of avoidance arrangements] U.K.

(1) This section applies if it is reasonable to suppose that, applying the corporation tax assumptions apart from this section, each of conditions A to D of section 82 (double taxation relief: conditions to be met for [F9 countering effect of avoidance arrangements]) would or might be met in relation to the CFC in relation to the relevant accounting period.

(2) Assume that such adjustments are to be made as are necessary for counteracting what, applying the corporation tax assumptions apart from this section, would be the effects of the scheme or arrangement in question in the relevant accounting period that would be referable to the purpose referred to in condition B of section 82.]

Textual Amendments

F8 Words in s. 371SR heading substituted (with effect in accordance with s. 31(6) of the amending Act) by Finance Act 2018 (c. 3), s. 31(5)(b)

F9 Words in s. 371SR(1) substituted (with effect in accordance with s. 31(6) of the amending Act) by Finance Act 2018 (c. 3), s. 31(5)(a)