INTM215300 - Controlled Foreign Companies: before CTSA
Apportionment: general rules
Chapter IV does not give the Inspector a full set of rules to
say how the Inspector must apportion chargeable profits, etc. In
particular there is no rule to say what part of chargeable profits,
etc the Inspector should apportion to each separate class of
interest in a controlled foreign company. Instead, there are a
number of general principles. In addition there are detailed rules
for special cases.
This page and the following pages cover matters relating to
apportionment which are specific to periods before the introduction
of self assessment for companies. See
INTM209000 and following pages for
general guidance on the computation of chargeable profits and
creditable tax and
INTM210000 and following pages for
general guidance on the apportionment of chargeable profits and
creditable tax.
The general principles for apportionment are as follows. They
are set out in, or the Inspector can infer them from, Chapter
IV:
- The total amount apportioned cannot exceed the amount of the chargeable profits or creditable tax for the accounting period concerned.
- Apportionment is made among the persons who at any time during the accounting period have interests in the controlled foreign company. This is done according to their interests - see INTM210040.
- There may be persons who have the same holding of shares of the same class throughout the accounting period. If so, chargeable profits, etc is apportioned to them in direct proportion to the numbers of shares held. This rule is however subject to sub-head (e) below and to (c) of INTM215310.
- The principles in sub-head (c) above also apply to apportionment among other persons each of whom holds an interest of the same description in the controlled foreign company.
- The same interest in a controlled foreign company may be held directly by one person and indirectly by another person (or persons). The indirect holding may be because of the latter's control over the first person. In that case apportionment may be made to the person holding the interest indirectly. This applies particularly where the first person is not resident in the United Kingdom. This rule is subject to (f) below.
- For some cases there is a special basis of apportionment - see INTM215320. This is where one person directly holds an interest in a controlled foreign company and another person holds indirectly the same interest.
Some rules direct that apportionment must be made in a special way – see INTM215310. In the normal case, the Board must apportion chargeable profits, etc., in such a way as seems to the Board to be just and reasonable. A company may pay interest which would not qualify as a charge. This may be to a loan creditor not resident in the United Kingdom. In that case the Board may apportion the interest to the loan creditor and this reduces the amounts apportioned to United Kingdom residents.
