INTM214030 - How the CTSA regime works for Controlled Foreign Companies
How to complete the Controlled Foreign Company supplementary pages
The following information is required on the supplementary page
- Name of controlled foreign company
The Roman alphabet should be used.
- Territory of residence
The territory of residence required is the territory determined under ICTA88/S749 ( INTM202050). The company will also need to indicate here whether an election has been made under ICTA88/S749(3)(d). If the company is conclusively presumed to be resident in a territory in which it is subject to a lower level of taxation under ICTA88/S749(5) then this should be indicated by the entry ‘749(5)’.
- Exemptions
Exemptions other than the Excluded Countries Regulations should be entered here. These are:
| a. | The Acceptable Distribution Policy | INTM204000 |
| b. | The Exempt Activities Test | INTM205000 |
| c. | De minimis | INTM207000 |
| d. | The Motive Test | INTM208000 |
Where it is considered that more than one of the above
exemptions apply then the company is not required to list them all
(though it may do so if it wishes). Any of the exemptions may
therefore be mentioned where they are appropriate and failure to
include all applicable exemptions will not prejudice a later claim
in respect of any of them.
This applies as much to the motive test as to any of the
other exemptions. However, companies should bear in mind that the
motive exemption (
INTM208000) was designed to be a
“sweeping up” provision to enable exemption to be given
to those Controlled Foreign Company’s that do not satisfy the
terms of the other exemptions but which, nonetheless, do not mainly
exist to avoid UK tax. As such, it is designed largely for
exceptional circumstances, to be applied where the other tests do
not apply. Accordingly, it is unlike the other exemptions. Whilst
they are wholly objective tests, the motive exemption involves a
largely subjective test.
Whilst, like all the other exemptions, it will be a question
of fact whether, for example, a company exists mainly to reduce UK
tax (as that concept is defined by ICTA88/SCH25/ PARA19), proving
(or disproving) subjective intentions is rarely straightforward.
Extensive enquiries may be necessary to establish the facts that
inform consideration of the motives for a particular transaction
involving the Controlled Foreign Company, or for its existence in
that accounting period. These enquiries may well be more
burdensome than those required to establish or verify one of the
objective exemptions.
In establishing appropriate risk assessment criteria for the
examination of this aspect of the Company Tax Return, HM Revenue
and Customs will take these factors into account and thus a claim
to exemption by the Motive Test is likely to be subject to closer
scrutiny than claims for the other exemptions.
If an exemption is due, there is no need to complete any of
the subsequent columns in respect of that controlled foreign
company. (See
INTM214020 regarding companies that
are not controlled foreign companies but which may be included in a
return.)
- The measure of apportionment
In most cases this will be the percentage of ordinary shares held directly or indirectly in the controlled foreign company ( INTM210080 to INTM210110). Where relevant interests are held directly or indirectly other than through ordinary shares the appropriate percentage should be calculated on a just and reasonable basis ( INTM210120 to INTM210130). (The percentage should not include the interest of any connected or associated person ( INTM202060) under ICTA88/S747(5)(b) although that figure should be taken into account in ascertaining whether the interest is 25% or more (see INTM210030)
- Chargeable profits
These are the chargeable profits that are apportioned to the company making the return. The figure is after reliefs available in ICTA88/SCH24 ( INTM209090 to INTM209190).
- Tax on chargeable profits.
The tax on chargeable profits is the sum that is apportionable under ICTA88/s747(4)(a) to the company making the return ( INTM210010). It is the figure before reliefs are given under ICTA88/SCH26/PARA1 or relief for unrelieved surplus advance corporation tax under regulations.
- Creditable Tax.
The figure to be entered here is the figure of creditable tax ( INTM209220) on the chargeable profits shown at box E.
- Reliefs in terms of tax.
Reliefs available under paragraph 1 ICTA88/SCH26 ( INTM211010 to INTM211100) are to be shown here in terms of tax. The total of these reliefs will need to be carried over to the main body of the return.
- Unrelieved surplus ACT as restricted
Unrelieved surplus ACT under regulations which is available against the ICTA88/S747 tax should be shown here. The total of entries here will need to be carried over to the main body of the return.
- ICTA88/S747 tax due
In this column the ICTA88/S747 tax chargeable should be shown. It will be the sum of the figure in box E less the sum of the figures in boxes G to I. The net figure is carried over to the return.
