Take the following steps if, as provided for by section 371BA(2), this section applies in relation to a CFC's accounting period.

• Step 1 In accordance with Chapter 15, determine the persons (“the relevant persons”) who have relevant interests in the CFC at any time during the accounting period. If none of the relevant persons is a company which meets the UK residence condition (see subsection (2)), the CFC charge is not charged in relation to the accounting period and no further steps are to be taken.

• Step 2 In accordance with Chapter 16, determine the CFC's creditable tax for the accounting period.

• Step 3 In accordance with Chapter 17, apportion the CFC's chargeable profits and creditable tax among the relevant persons.

• Step 4 Take each relevant person which is a company meeting the UK residence condition and, in accordance with section 371BD, determine if the company is a chargeable company. If there are no chargeable companies, the CFC charge is not charged in relation to the accounting period and step 5 is not to be taken.

• Step 5 The CFC charge is charged on each chargeable company as follows. A sum equal to—

  1. a

     corporation tax at the appropriate rate on P% of the CFC's chargeable profits, less

  2. b

     Q% of the CFC's creditable tax,

  is charged on the chargeable company as if it were an amount of corporation tax charged on the company for the relevant corporation tax accounting period. This step is subject to sections 371BG F4to 371BI .

A company meets the UK residence condition if it is UK resident at a time during the accounting period when it has a relevant interest in the CFC.

For the purpose of taking step 5 in subsection (1) in relation to a chargeable company (“CC”)—

• “the appropriate rate”, subject to F2subsection (4) and section 371BH, means—

  1. a

     the rate of corporation tax applicable to CC's profits of the relevant corporation tax accounting period on which corporation tax is chargeable (see section 4(1) and (2) of CTA 2010), or

  2. b

     if there is more than one such rate, the average rate over the whole of the relevant corporation tax accounting period,

• “P%” means the percentage of the CFC's chargeable profits apportioned to CC,

• “Q%” means the percentage of the CFC's creditable tax apportioned to CC, and

• “the relevant corporation tax accounting period” means CC's accounting period for corporation tax purposes during which the CFC's accounting period ends.

In determining “the appropriate rate”, it must be assumed that all of CC's profits of the relevant corporation tax accounting period on which corporation tax is chargeable are chargeable at the main rate rather than the Northern Ireland rate.