INTM215310 - Controlled Foreign Companies: before CTSA

Apportionment: special cases

ICTA88/S752 (2) (3) and (7)

In most cases chargeable profits etc are likely to be apportioned in direct proportion to the holdings of ordinary shares in a controlled foreign company. However, such an approach may not in some cases truly reflect the extent of control. Persons other than direct or indirect shareholders may exercise control. They may have rights over the company's income or assets.

ICTA88/S752 sets out the following different ways to apportion for these cases:

• The Board may, if it seems to be just and reasonable to do so, attribute an interest. It may do this for each person with an interest in the controlled foreign company. It can attribute on the basis of the person's interest in the company's assets available for distribution to that person if there is a winding-up or otherwise.
• The Board may, if it seems just and reasonable to do so, treat a loan creditor as having an interest in the company. It can do this to the extent to which the company's income may be used to redeem, repay or discharge the loan capital or debt. This applies in the case of a controlled foreign company other than a trading company – see definition of a trading company in INTM217020.
• In some cases a person may hold an interest in a controlled foreign company in a fiduciary or representative capacity. This could be, for example, a trustee or nominee. If there is an identifiable beneficiary the Board may treat the interest as held by that beneficiary. If there is more than one identifiable beneficiary, the Board may treat the interest as apportioned among them. The Board does this on such basis as it thinks just and reasonable.
• It may be that the beneficiaries cannot be identified. Or it may be that the Board does not exercise its discretion under ICTA88/S752 (7) to apportion only to the beneficiaries. If so, the apportionment is to be made between the nominee or trustee and the beneficiaries according to their respective interests. Again the Board does this on such basis as it thinks just and reasonable.
• It may be that the nominee or trustee cannot benefit from this interest in the company - other than by the receipt of fees at an arm's length rate - for acting in the capacity of nominee or trustee. In that case the Board is unlikely to think it reasonable to apportion chargeable profits to the nominee or trustee. This is so even where the beneficiaries cannot be assessed (for instance if they are individuals, or non-resident companies).