INTM255440 - Controlled Foreign Companies: exemptions - the motive test: Application of motive test: examples - United Kingdom takeover of overseas group

Example 3

A United Kingdom group takes over an overseas group with a Bermuda investment company. The facts show that:

  • the main reason for the existence of the company was to avoid tax in the territory of the erstwhile overseas parent; and
  • whilst there is a reduction in UK tax by a diversion of profits from the UK, its achievement is not initially another main reason for the company바카라 사이트™s existence.

Initially, the diversion of profits leg of the motive test is passed. In practice, HMRC will normally accept that such treatment will apply for the first accounting period following the takeover. Any such 바카라 사이트˜period of grace바카라 사이트™ will normally end after that first full accounting period following the acquisition (but can be extended in exceptional circumstances). Thereafter the company will fail the motive test unless the company can demonstrate that the achievement of a reduction in UK tax by a diversion of profits from the UK, has not become a main reason for the company바카라 사이트™s existence.

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Example 4

A United Kingdom group acquires an overseas group with a Bermuda captive insurance company which was set up to avoid tax in the territory of the overseas parent. Once the UK group acquires the captive insurance company it ceases to write any business and goes into run off. The facts show that:

  • the main (and, indeed, now the only) reason for the existence of the company is to run off its existing business; and
  • whilst there is a reduction in UK tax by a diversion of profits from the UK, its achievement is not another main reason for the company바카라 사이트™s existence

The company consequently passes the diversion of profits leg of the motive test provided its only activity continues to be the running off of insurance written prior to its acquisition by the UK group.