INTM210030 - Controlled Foreign Companies: apportionment of chargeable profits and creditable tax

Substantial interest requirement

ICTA88/S747(5) ICTA 1988

Where chargeable profits of a controlled foreign company are apportioned to a United Kingdom resident company, no assessment may be made in respect of those profits unless the aggregate of the following amounts is at least 25% of the total chargeable profits of the controlled foreign company. The amounts to be aggregated are:

1. the amount of the chargeable profits which have been apportioned to the resident company, and
2. the amount of the chargeable profits which have been apportioned to persons (whether corporate or individual) who are connected or associated with the resident company. (See INTM202060)

The increase in the minimum threshold in FA98 from 10% to 25% was made to reduce compliance costs by removing additional shareholdings from potential charge. The November 1997 Consultative Document made clear that if Ministers become aware of arrangements designed to exploit this increased limit, they will consider enacting, retrospectively if necessary, preventative legislation.