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Finance Act 2012

Background Note

595.This measure provides for a new CFC regime to be introduced in Finance Bill 2012 and supports the Government’s objective to deliver a more competitive corporate tax system. The policy objectives of the new CFC regime are to:

  • introduce a modernised CFC regime that better reflects the way that businesses operate in a global economy whilst maintaining adequate protection of the UK tax base;

  • exempt profits where there is no artificial diversion of UK profits; and

  • exempt profits arising from genuine economic activities undertaken overseas.

596.The Government announced this measure at the Budget in June 2010 and outlined the policy proposals on 29 November 2010 as part of the Corporate Tax Reform document.

597.Detailed proposals for this measure were published for consultation in Controlled Foreign Companies (CFC) reform in June 2011. On 6 December 2011 the Government published Controlled Foreign Companies (CFC) reform: response to consultation which provides an update on the developments on the reform of Controlled Foreign Companies rules following consultation and includes a summary of the responses received and a technical note which gives an overview of the legislation. Further updates were published on 31 January 2012 and 29 February 2012. All documents are available on the HM Treasury website.

598.The measure also amends the exemption for profits arising in foreign permanent establishments, so that the anti-diversion rule is brought into line with the CFC regime.

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