INTM201060 - Controlled Foreign Companies: legislation - introduction and outline

Definition of Controlled Foreign Company

The first stage in establishing whether there is a Chapter IV liability is to determine whether a controlled foreign company exists. ICTA88/S747(1) defines a controlled foreign company as a company which in an accounting period is:

• resident outside the United Kingdom, and
• controlled by persons resident in the United Kingdom, and
• subject to a lower level of taxation in its territory of residence.

There is no definition of 'company' included in Chapter IV, so the meaning given by ICTA88/S832 (1) applies, see INTM202010. The definition of an 'accounting period' is given at INTM202040. The terms 'resident' and 'territory of residence' are dealt with at INTM202050. Until 21 March 2000, 'control' was determined broadly in accordance with ICTA88/S416. From that date, ICTA88/S755D provides a definition of 'control' specific to Chapter IV, more details of which are given in at INTM202020. If anyone has doubts about whether an overseas entity is a company they can ask Business International: Outward Investment Team for advice.

The test of whether a foreign company is subject to a 'lower level of taxation' is explained at INTM202030. A comparison is made between the tax which the company has paid in its territory of residence and the Corporation Tax which it would have paid if it had been resident in the United Kingdom. If the former is less than three-quarters of the latter the company is subject to a lower level of taxation.