INTM210070 - Controlled Foreign Companies: apportionment of chargeable profits and creditable tax

Relevant interests

ICTA88/S752A ICTA 1988

The purpose of the relevant interest rules is to ascertain who is subject to an apportionment of profits in a controlled foreign company. Any United Kingdom resident company with a relevant interest will, subject to exemptions, have to self assess the tax arising on an apportionment to them.

Not everyone with an interest in a controlled foreign company has a relevant interest. For example, if two United Kingdom companies have an interest in a controlled foreign company because one holds the shares directly and the other holds the shares in that United Kingdom company only the first United Kingdom company will hold the relevant interest, and only that company will be required to self assess the chargeable profits.

The rules have the effect of tracing back, where possible, interests to a United Kingdom company (or companies) that both holds an interest in the controlled foreign company and is additionally the lowest United Kingdom holding company in any chain of United Kingdom resident companies.

Rule 1 (ICTA88/S752A(2) and (3)). A United Kingdom resident company has a ‘relevant interest’ in a controlled foreign company if it has a direct or indirect interest in that company unless that interest is held through another United Kingdom resident company.

Rule 2 (ICTA88/S752A(4), (5) and (6)). A person (other than a United Kingdom resident company) which is connected or associated with a United Kingdom resident company has a ‘relevant interest’ in a controlled foreign company to the extent that :-

1. the same interest is not held via a United Kingdom resident company or another ‘related person’, and
2. the same interest is not held by a United Kingdom resident company with an interest in the ‘related person’.

(A ‘related person’ is a person other than a United Kingdom resident company which is connected or associated with a United Kingdom resident company which has a relevant interest in the controlled foreign company by virtue of Rule 1.)

Rule 3 (ICTA88/S752A(7) and (8)). Any person with a direct interest in a controlled foreign company that is not a ‘relevant interest’ under the above rules has a ‘relevant interest’ to the extent that another person does not hold any of the same interest indirectly and, if a person does so, does not thereby itself have a ‘relevant interest’.

The example at INTM210110 shows relevant interests.