Search Legislation

Finance Act 2012

Chapter 10- The exempt period exemption

228.New section 371JA introduces Chapter 10 which provides for a temporary period of exemption for foreign subsidiaries which come under UK control.

229.New section 371JB(1) provides that the exemption applies for an accounting period if:

  • the CFC’s accounting period ends during an exempt period (as defined by new sections 371JC and 371JD);

  • the subsequent period condition is met; and

  • the chargeable company condition is met.

230.New subsection (2) sets out the subsequent period condition. This requires the CFC to continue as a CFC for at least one accounting period which begins after the exempt period and that there is no CFC charge in relation to the CFC’s first accounting period to begin after the end of the exempt period.

231.New subsection (3) provides that the chargeable company condition is met if the charging condition in new section 371JC is met and throughout the “relevant period” either a company which has a relevant interest in the CFC at the beginning of the exempt period, or another connected company, is a chargeable company. The effect of this is that the availability of the exempt period is not affected by a transfer of ownership of a CFC within a group if there is at least one connected UK company which would be subject to a CFC charge in respect of the CFC.

232.New subsection (4) provides the following definitions:

  • An “original chargeable company” is a company which would be a chargeable company at the start of the exempt period for the purposes of the charging condition set out in new section 371JC;

  • The “relevant period” is the period from immediately after the beginning of the exempt period until the end of the subsequent period (the first accounting period beginning after the end of the exempt period).

233.New subsection (5) provides that the exemption is subject to an anti-avoidance rule which is detailed at new section 371JF.

234.New section 371JC determines when an exempt period begins.

235.New subsection (1) provides that an exempt period begins at “the relevant time”, during an accounting period if:

  • the “initial condition” is met (see subsection (2));

  • the charging condition is met at the relevant time; and

  • the charging condition is not met at any point during the “relevant preceding period” so long as there is such a period (see new subsection (5)). If the company comes into existence at the relevant time, this condition does not apply.

236.New subsection (2) provides that the “initial condition” is met if:

  • immediately before the relevant time the CFC is a company carrying on a business, or

  • a company is formed or incorporated at the relevant time, it is formed or incorporated for the purpose of controlling a company or companies that will qualify for the exemption.

237.New subsections (3) and (4) together set out the circumstances in which the “charging condition” is met. Broadly this is where a CFC has chargeable profits for an accounting period and there is at least one chargeable company in respect of those profits.

238.New subsection (5) defines the “relevant preceding period” as the 12 months immediately prior to the relevant time, but disregarding any part of that period before the company came into existence.

239.New section 371JD determines the length of the exempt period.

240.New subsection (1) sets out the basic rule that the exempt period will last for 12 months.

241.New subsections (2) to (5) introduce the ability for chargeable companies to apply for an extension to the 12 month exempt period. A notice must be given to an Officer of HM Revenue and Customs before the end of the exempt period. An Officer of HM Revenue and Customs can however extend the exempt period or, if necessary, further extend an extended exempt period. Notices under this section can only be given by companies which would be chargeable companies at that time.

242.New section 371JE deals with cases where a CFC’s accounting period includes part of an exempt period, but where the accounting period does not end during an exempt period. In these circumstances, the CFC rules will apply to the CFC’s accounting period, but any chargeable profits which arise will need to be adjusted on a just and reasonable basis to take account of profits which arise during the exempt period. The section is subject to the anti-avoidance rule in new section 371JF.

243.New section 371JF provides an anti-avoidance condition in relation to the exempt period exemption.

244.New subsection (1) determines that the exemption will not apply if either of two conditions, A or B, is met.

245.New subsection (2) sets out Condition A, which is that an arrangement:

  • is entered into which has a main purpose of securing a tax advantage for any person;

  • is linked to the potential application of the exempt period exemption for one or more accounting periods of the CFC; and

  • involves the CFC either holding assets which give rise to finance profits, or holding IP which gives rise to income of the CFC.

This condition for example targets arrangements where groups seek to take advantage of the exempt period exemption by placing mobile, income generating assets within a CFC.

246.New subsection (3) sets out Condition B, which is that an arrangement:

  • is entered into at any time which reduces the length of any accounting period to less than 12 months; and

  • has a main purpose of ensuring that the exempt period exemption applies to one or more accounting periods of the CFC.

  • This condition for example targets arrangements whereby the subsequent accounting period is shortened to ensure that the subsequent period condition is met.

247.New section 371JG deals with the amendment of company tax returns in relation to the exempt period exemption. This section extends the amendment time limit of any corporate tax return period in which falls, wholly or partly, a CFC’s exempt period. This is necessary because whether any chargeable profits arise to that CFC for that period can only be ascertained once the CFC’s position for the subsequent period is established. The effect of the section is to extend the amendment date for any chargeable company’s accounting period which includes any part of the exempt period to match the corporation tax return amendment date for the accounting period in which the CFC’s subsequent period ends.

Back to top


Print Options


Explanatory Notes

Text created by the government department responsible for the subject matter of the Act to explain what the Act sets out to achieve and to make the Act accessible to readers who are not legally qualified. Explanatory Notes were introduced in 1999 and accompany all Public Acts except Appropriation, Consolidated Fund, Finance and Consolidation Acts.


More Resources

Access essential accompanying documents and information for this legislation item from this tab. Dependent on the legislation item being viewed this may include:

  • the original print PDF of the as enacted version that was used for the print copy
  • lists of changes made by and/or affecting this legislation item
  • confers power and blanket amendment details
  • all formats of all associated documents
  • correction slips
  • links to related legislation and further information resources