INTM242200 - Controlled Foreign Companies: Residence of CFCs: The Overall Approach
Once a non-UK resident company has been defined as a CFC, the objective of Chapter 20 is to identify a territory that treats the CFC as resident under its own laws. The 바카라 사이트渃entral management and control바카라 사이트� test is not usually relevant as most foreign jurisdictions have a concept of residence which is not based on central management and control. Instead, 바카라 사이트渢he general rule바카라 사이트� in TIOPA/S371TB(1), based on the approach commonly adopted in the residence articles of double taxation arrangements, is that a CFC is regarded as resident in the territory in which it is liable to tax on its profits by reason of domicile, residence or place of management throughout the relevant accounting period.
TIOPA10/S371TA sets out other approaches which can be taken to determine the territory of residence of a CFC. The first requirement however is to see whether such a territory can be determined by applying the general rule. If no territory can be determined under the general rule then TIOPA10/S371TA(1)(b) applies instead. This states that if a CFC is UK incorporated or formed but, under CTA 2009/S18, is treated as non-UK resident in accordance with the UK바카라 사이트檚 double taxation arrangements with another territory, then it is treated as resident in that other territory i.e. it is non-UK resident. Otherwise the CFC is treated as resident in the territory in which it is incorporated or formed.
Excluded Territories Exemption
TIOPA10/S371TA(3) refers to two rules elsewhere in TIOPA10/Part 9A where the residence rule is adapted. The first is an adapted rule for the ETE set out at TIOPA10/371KC(3) which requires at all times during the accounting period, the CFC, or persons with an interest in the CFC, to be liable to tax in the CFC바카라 사이트檚 territory of residence in order for the rule in section 371TA(1)(b) to apply. If no territory of residence can be established under this adaptation of TIOPA10/S371TA(1)(b), the ETE cannot apply for the accounting period.
However for the purposes of the modified short list of excluded territories in the Regulations, TIOPA10/S371KC(3) is disregarded and regulation 4(3) of Controlled Foreign Companies (Excluded Territories) Regulations 2012 applies instead. This states that TIOPA10/S371TA(1)(b) will only apply in order to determine a CFC바카라 사이트檚 territory of residence if the CFC or persons with interests in the CFC are subject to taxation under the law of the territory in question on all of the CFC바카라 사이트檚 income arising during the accounting period. The meaning of 바카라 사이트渟ubject to tax바카라 사이트� is more restrictive than 바카라 사이트渓iable to tax바카라 사이트� in that profits are only 바카라 사이트渟ubject to tax바카라 사이트� if they are actually charged under the law of a territory to tax (subject to any deductions for losses, allowances etc). If the law of a territory exempts a person from liability to tax on those profits or exempts those profits themselves from taxation, then those profits will not be 바카라 사이트渟ubject to tax바카라 사이트� in that territory.
So the residence requirement for CFCs, where the territory of residence is determined through incorporation or under a double taxation agreement with the UK, is more restrictive with regard to the simplified ETE than it is for the main ETE at TIOPA10/S371KC which only requires such CFCs or persons with interests in the CFC to be 바카라 사이트渓iable to tax바카라 사이트� on the CFC바카라 사이트檚 income. This is because the simplified ETE has fewer conditions to satisfy than the main exemption and, in particular, the various Categories A to D of restricted income at TIOPA10/S371KB(1)(b) will not apply to CFCs that fall within the simplified ETE.
Tax exemption
There is also an additional residence rule for the application of the Tax Exemption set out in Chapter 14 at step 1 of TIOPA10/S371NB(1). This provides that a CFC cannot benefit from the Tax Exemption unless a territory of residence can be determined under the general rule in section 371TB i.e. a CFC cannot benefit from the Tax Exemption if it is not liable to tax in its territory of residence by reason of domicile, residence or place of management in the relevant accounting period. This will normally apply to CFCs that are incorporated in a tax shelter where there is no liability to tax or where the CFC is incorporated in a territory that taxes on a 바카라 사이트渟ource바카라 사이트� basis such as Hong Kong.