Income and gains requirement
5.—(1) The requirement with respect to the income and gains of a controlled foreign company as respects an accounting period is that the amount of its non-local source income arising in that accounting period does not exceed whichever is the greater of–
(a)£50,000 or, where that accounting period is less than twelve months in duration, that amount proportionately reduced, and
(b)an amount equal to ten per cent. of its commercially quantified income arising in that accounting period.
(2) In paragraphs (1) and (3) “commercially quantified income” means the amount of profits of the controlled foreign company before tax, determined in accordance with generally accepted accounting standards other than an equity basis of accounting, but disregarding capital profits or losses.
(3) Subject to paragraph (4) (special rules for banks and insurance companies), for the purposes of paragraph (1) the amount of a controlled foreign company’s non-local source income arising in an accounting period is the aggregate of the following amounts, namely–
(a)the gross amount of income consisting of distributions recognised as income in computing the commercially quantified income of that company for that period from the profits of companies not resident in the territory of residence of that company, other than branch or agency income;
(b)the gross amount of income and gains recognised as income in computing the commercially quantified income of that company for that period and deriving from loans to, or deposits with, persons not resident in the territory of residence of that company, or branches or agencies situated outside that territory of companies resident in that territory, other than branch or agency income and gains;
(c)the gross amount of income and gains recognised as income in computing the commercially quantified income of that company for that period in relation to royalties payable by persons not resident in the territory of residence of that company, or by branches or agencies situated outside that territory of companies resident in that territory, other than branch or agency income and gains;
(d)the gross amount of income and gains recognised as income in computing the commercially quantified income of that company for that period in relation to premiums and rents payable in respect of property situated outside the territory of residence of that company by persons not resident in that territory, or by branches situated outside that territory of companies resident in that territory, other than branch or agency income and gains;
(e)the amount of any branch or agency income and gains recognised as income in computing the commercially quantified income of that company for that period, calculated in accordance with regulation 6;
(f)the gross amount of any income not falling within any of sub-paragraphs (a) to (e) above that is recognised as income in computing the commercially quantified income of that company for that period and does not constitute income which either–
(i)is treated under the laws of the territory of residence of that company as accruing or arising in, or derived from, that territory, or
(ii)where there are no laws of that territory treating that income as accruing or arising in, or derived from, that territory or another territory, would be treated as accruing or arising in, or derived from, that territory if there were such laws in force in that territory and those laws were identical to the laws of the United Kingdom treating income as accruing or arising in, or derived from, a territory for the purposes of the Corporation Tax Acts, and which
(iii)in either case is within that territory’s charge to tax.
(4) Where–
(a)the controlled foreign company concerned is an institution carrying on the business of banking, or an insurance company, and
(b)income of that company falling within any of sub-paragraphs (a) to (d) of paragraph (3)–
(i)is an integral part of income arising or accruing to the company from the trade of banking or insurance carried on by the company, being income which, if the company were resident in the United Kingdom, would be income arising to the company from a trade for the purposes of the Corporation Tax Acts, and
(ii)is within the charge to tax of the territory of residence of that company,
the aggregate amount of that income shall be disregarded in computing the aggregate amount of the company’s non-local source income.