SCHEDULES
SCHEDULE 25F7Cases where section 747(3) does not apply
PART II EXEMPT ACTIVITIES
6
1
Throughout an accounting period a controlled foreign company is engaged in exempt activities if, and only if, each of the following conditions is fulfilled—
a
that, throughout that accounting period, the company has a business establishment in the territory in which it is resident; and
b
that, throughout that accounting period, its business affairs in that territory are effectively managed there; and
c
that any of sub-paragraphs (2) to F9(4A) below applies to the company.
2
This sub-paragraph applies to a company if—
a
at no time during the accounting period in question does the main business of the company consist of either—
i
investment business, or
ii
dealing in goods for delivery to or from the United Kingdom or to or from connected or associated persons; and
b
in the case of a company which is mainly engaged in wholesale, distributive or financial business in that accounting period, less than 50 per cent. of its gross trading receipts from that business is derived directly or indirectly from connected or associated persons F8or persons who have F10a 25 per cent. assessable interest in the company in the case of that accounting period.
3
This sub-paragraph applies to a company which is a holding company if at least 90 per cent. of its gross income during the accounting period in question is derived directly from companies which it controls and which, throughout that period—
a
are resident in the territory in which the holding company is resident; and
b
and a holding company to which this sub-paragraph applies is in this Part of this Schedule referred to as a “local holding company”.
4
This sub-paragraph applies to a company which is a holding company, but not a local holding company, if at least 90 per cent. of its gross income during the accounting period in question is derived directly from companies which it controls and which, throughout that period—
a
are local holding companies; or
F34A
This sub-paragraph applies to a company which is a superior holding company if at least 90 per cent. of its gross income during the accounting period in question—
a
represents qualifying exempt activity income of its subsidiaries; and
b
is derived directly from companies which it controls and which fall within sub-paragraph (4B) below.
4B
For the purposes of paragraph (b) of sub-paragraph (4A) above, a company falls within this sub-paragraph if—
a
throughout the accounting period mentioned in that sub-paragraph, it is not itself a superior holding company but otherwise is, in terms of this Schedule, engaged in exempt activities or is, in terms of sub-paragraph (5A) below, an exempt trading company; or
b
it is itself a superior holding company throughout that period and at least 90 per cent of its gross income during that period—
i
represents qualifying exempt activity income of its subsidiaries, and
ii
is derived directly from companies which it controls and which themselves fall within this paragraph or paragraph (a) above.
F44C
For the purposes of sub-paragraph (2)(b) above, a person has a 25 per cent. assessable interest in a controlled foreign company in the case of an accounting period of the company if, on an apportionment of the chargeable profits and creditable tax (if any) of the company for that accounting period under section 747(3), at least 25 per cent. of the controlled foreign company’s chargeable profits for the accounting period would be apportioned to that person.
5
Any reference in F13sub-paragraphs (3) to (4B) above to a company which a holding company F5or superior holding company controls includes a reference to a trading company in which the holding company F5or superior holding company holds the maximum amount of ordinary share capital which is permitted under the law of the territory—
a
in which the trading company is resident; and
b
from whose laws the trading company derives its status as a company.
F65A
For the purposes of sub-paragraphs (3) to (4B) above, a company is an exempt trading company throughout any period if—
a
it is a trading company throughout each of its accounting periods which falls wholly or partly within that period; and
b
each of those accounting periods is one as regards which—
i
the condition in section 747(1)(c) is not satisfied; or
ii
the conditions in section 748(1)(e) are satisfied; or
iii
the conditions in section 748(3)(a) and (b) are satisfied.
6
The following provisions of this Part of this Schedule have effect in relation to sub-paragraphs (1) to (4) above.
Sch. 25 heading substituted (with effect in accordance with Sch. 17 para. 37 of the amending Act) by Finance Act 1998 (c. 36), Sch. 17 para. 25; S.I. 1998/3173, art. 2