One popular area in Advanced Tax and BPT is controlled foreign companies (CFCs). CFCs have been examined in the last 4 consecutive Advanced Tax exams.

You need to learn 3 things about CFCs

·       Definition Of A CFC

A CFC is an overseas company controlled by UK resident persons that have artificaiily diverted profits away from the UK.

·       5 Exemptions

If any ONE of the 5 exemptions are satisfied then there is no CFC Tax charge

Exempt Period -If a UK company takes over a compant in a tax haven, there is no CFC tax charge for the first 12 months

Excluded Territory -If the overseas country is on the list of excluded territories,   there is no CFC tax charge

Low Profits -if the CFC has trading profits of less than £500,000 and investment income of less than £50,000 in a 12 month period,, there is no CFC tax charge.

Low Profit Margin -if the CFC has operating profits of less than 10% , there is no CFC tax charge.

Tax Rate -If the tax rate in the overseas country is at least 75% of the UK tax rate , there is no CFC tax charge

·       CFC Tax Charge

The CFC tax charge is imposed on any UK company that owns at least 30% of the CFC and is added to the UK corporation tax liabity.

The CFC tax charge is based on the UK company’s share of profits diverted from the UK .

Double tax relief can be claimed for any overseas tax suffered on that proportion of profits taxed in the UK.

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