INTM209080 - Controlled Foreign Companies: Computation of Chargeable Profits and Creditable Tax

Close company and group provisions

The close company provisions - ICTA88/SCH24/PARA3

The overseas company is assumed not to be a close company. The cost of benefits provided by the company to a participator cannot therefore be treated as a distribution in accordance with ICTA/S418 and the cost of providing such benefits disallowed as a deduction in computing chargeable profits. The deduction may however be disallowable in accordance with ICTA88/S74.

Group relief - ICTA88/SCH24/PARA5

The company is assumed to be neither a member of a group of companies nor a member of a consortium. Thus it cannot accept losses or other amounts available for surrender under ICTA88/S403 which are surrendered to it by an associated company and it cannot surrender its own losses, etc, to such a company. See, however, INTM211000 concerning the reliefs available to a United Kingdom resident company to which a controlled foreign company’s chargeable profits are apportioned.

Intra-group payments - ICTA88/SCH24/PARA6

It is assumed that the conditions for making an election under ICTA88/S247(4) are not fulfilled in respect of sums paid or received by a foreign company. 'Received' in this context means beneficially entitled (ICTA88/SCH24/PARA6(2)). The consequences of the non-availability of a ICTA88/S247 election is that where a United Kingdom resident company pays interest to an overseas company such as a foreign subsidiary, it cannot be party to a ICTA88/S247(4) election to avoid the obligation to deduct and account for Income Tax.

The latter point, together with the assumption in INTM209090 is relevant to the question of entitlement to small companies relief (ICTA88/S13(7)) in computing “corresponding” United Kingdom tax (see INTM202030).

ACT - ICTA88/SCH24/PARA7

See INTM211070 concerning the set-off of ACT against the liability under Chapter IV of a United Kingdom resident company to which a controlled foreign company’s chargeable profits are apportioned.