Income and Corporation Taxes Act 1988

747 Imputation of chargeable profits and creditable tax of controlled foreign companiesU.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.]

(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)[F4Subject 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 [F5chargeable 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 [F6which 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.

[F7(4A)Where by virtue of section 747A a company’s chargeable profits for an accounting period are to be computed and expressed in a currency other than sterling, for the purposes of subsection (4)(a) above the apportioned amount shall be taken to be the sterling equivalent of the apportioned amount found in the currency other than sterling.

(4B)The translation required by subsection (4A) above shall be made by reference to the London closing exchange rate for the two currencies concerned for the last day of the accounting period concerned.]

(5)Tax shall not, by virtue of subsection (4) above, be [F8chargeable 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 [F925 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

F1Words 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

F2Words 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

F4Words 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

F5Words 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

F6Words 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

F8Words 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

F9Words 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)

Marginal Citations

M1Source—1984 s.82