INTM216060 - Controlled Foreign Companies: Reviews

Other considerations

When looking at the accounts of overseas companies for Chapter IV purposes the Inspector should be alert also for information that can be of value elsewhere, in particular for ways designed to keep profits outside the United Kingdom. Watch also for ways to send profits here without paying tax. See the following examples.

Company Residence

An overseas company says it is resident outside the United Kingdom. When the facts are looked at more closely, however, it is found to be controlled and managed here. It is therefore resident here ( INTM202050).

Profit Importation

A company is until now resident outside the United Kingdom. It transfers its control and management here. It then pays its stored profits to its parent company as a dividend. It is likely that the company will make an election under ICTA88/S247 (1). In this way it will avoid United Kingdom tax. Such cases should be reported to CT & VAT, International CT.

Upstream Loans

An overseas company has surplus profits on which it has paid little or no tax. It lends these profits to its United Kingdom parent. The loan has no tax effect. The payment of a dividend, however, would be taxable under Case V. Such cases should be reported to CT & VAT, International CT.

Loss Importation

An overseas company carries on business mainly abroad. It says it is controlled and managed here. In this way it can use its trading losses or expenses of management, etc. It does this by claiming group relief and a set-off against United Kingdom profits. Such cases should be reported to CT & VAT, International CT.

Transfer Pricing

An overseas company shows in its accounts dealings with or loans to United Kingdom associates. The deals may not be at market value or the loan interest may not be at a commercial rate. In that case the Inspector should think about using ICTA88/S770 and ICTA88/S773 or ICTA88/Sch28AA to adjust the profits of the associates.

The Inspector may not be able to challenge some of these methods as the law stands. It is still important that CT & VAT, International CT is kept up to date about how widely companies use such methods.