INTM214080 - How the CTSA regime works for Controlled Foreign Companies

HM Revenue & Customs Enquiries: penalties

FA98/SCH18/PARA20 (tax-geared penalties) will apply to the controlled foreign company supplementary page as it applies to the rest of the return. This renders companies liable to a tax-related penalty where they fraudulently or negligently deliver an incorrect return or, on discovering that a return is incorrect, do not remedy the error without reasonable delay.

The maximum penalty is the difference between the tax payable by the company for the period for which the return is made and the amount which would have been payable on the basis of the return delivered. Full details of these penalties are found in the general Self assessment Manuals for Corporation Tax.

ICTA88/S754A(9) imposes a penalty under FA98/SCH18/PARA20 where it becomes established that an acceptable distribution policy was not pursued in a case where a return was made on the basis that such a policy would be pursued (ICTA88/S754A(4)) and the return was not amended within the time allowed (see INTM214050).

The imposition of penalties is subject to the oversight of Business International, Outward Investment Team. Before a penalty is imposed under FA98/SCH18/PARA20 in respect of a controlled foreign company return the following will be taken fully into account:

• the information that should reasonably have been available to the company making the return,
• the understanding of the legislation that might reasonably be expected and
• the company’s justification for taking an alternative interpretation of facts or legislation.