2012 No. 3024

Corporation Tax

The Controlled Foreign Companies (Excluded Territories) Regulations 2012

Made

Laid before the House of Commons

Coming into force

The Commissioners for Her Majesty’s Revenue and Customs make these Regulations in exercise of the powers conferred by section 371KB(2) and (3) of the Taxation (International and Other Provisions) Act 20101.

Citation, commencement and effect1

1

These Regulations may be cited as the Controlled Foreign Companies (Excluded Territories) Regulations 2012 and come into force on 1st January 2013.

2

These Regulations have effect for accounting periods of CFCs beginning on or after 1st January 2013.

Interpretation2

In these Regulations—

  • “TIOPA 2010” means the Taxation (International and Other Provisions) Act 2010;

  • “the Schedule” means the Schedule to these Regulations.

Excluded territories3

A territory listed in Part 1 of the Schedule is an excluded territory for the purposes of Chapter 11 of Part 9A of TIOPA 2010 (the excluded territories exemption).

Modified excluded territories exemption to apply in specified cases4

1

For the purposes of Chapter 11 of Part 9A of TIOPA 2010, the requirements of section 371KB(1)(b) and (c) of that Act do not have to be met in order for the excluded territories exemption to apply for a CFC’s accounting period if—

a

for the purposes of that Chapter, the CFC is for the accounting period resident in—

i

Australia,

ii

Canada,

iii

France,

iv

Germany,

v

Japan, or

vi

the United States of America;

b

requirement A is met (if applicable); and

c

requirement B is met.

2

Requirement A is applicable only if the CFC is resident as mentioned in paragraph (1)(a) by virtue of section 371TA(1)(b) of TIOPA 2010.

3

Requirement A is that the CFC would still be resident as mentioned in paragraph (1)(a) were the following subsections to be substituted for section 371KC(3) of TIOPA 2010—

3

But section 371TA(1)(b) is to be applied only if the CFC or persons with interests in the CFC are subject to taxation under the law of the territory in question on all of the CFC’s income arising during the accounting period.

3A

For the purposes of subsection (3), the CFC’s income does not include any dividend or other distribution received, other than one for which the company paying the dividend or other distribution is entitled to a deduction against its profits for tax purposes under the law of the territory in which it is resident.

4

Requirement B is that at no time during the accounting period is the CFC’s business carried on, to any extent, through a permanent establishment which the CFC has in a territory outside the territory in which it is resident for the accounting period for the purposes of Chapter 11 of Part 9A of TIOPA 2010.

Further requirement to be met for excluded territories exemption to apply5

For the purposes of Chapter 11 of Part 9A of TIOPA 2010, Part 2 of the Schedule specifies a further requirement which must be met in order for the excluded territories exemption to apply for a CFC’s accounting period.

Jim HarraEdward TroupTwo of the Commissioners for Her Majesty’s Revenue and Customs

SCHEDULE

Regulations 3 and 5

PART 1Excluded Territories

Afghanistan

Fiji

Panama

Algeria

Finland

Papua New Guinea

Angola

France

Peru

Argentina

Gabon

Philippines

Armenia

Gambia

Poland

Aruba

Germany

Portugal

Australia

Ghana

Puerto Rico

Austria

Greece

Republic of Korea

Azerbaijan

Guyana

Russia

Bangladesh

Honduras

Saudi Arabia

Barbados

Iceland

Senegal

Belarus

India

Sierra Leone

Belgium

Indonesia

Slovakia

Belize

Iran

Slovenia

Benin

Israel

Solomon Islands

Bolivia

Italy

South Africa

Botswana

Ivory Coast

Spain

Brazil

Jamaica

Sri Lanka

Brunei

Japan

Swaziland

Burundi

Kenya

Sweden

Cameroon

Lesotho

Tanzania

Canada

Libya

Thailand

China

Luxembourg

Trinidad and Tobago

Colombia

Malawi

Tunisia

Croatia

Malaysia

Turkey

Cuba

Malta

Uganda

Czech Republic

Mexico

Ukraine

Democratic Republic of the Congo

Monaco

United States of America

Denmark

Morocco

Uruguay

Dominican Republic

Namibia

Venezuela

Ecuador

Netherlands

Vietnam

Egypt

New Zealand

Zambia

El Salvador

Nigeria

Zimbabwe

Falkland Islands

Norway

Faroe Islands

Pakistan

PART 2Specified further requirement

If at any time during the accounting period the CFC carries on insurance business in relation to which the CFC is regulated in any territory, none of that business is carried on in Luxembourg at that time.

EXPLANATORY NOTE

(This note is not part of the Regulations)

These Regulations exercise powers conferred by the Taxation (International and Other Provisions) Act 2010 (c. 8) (“TIOPA 2010”) in relation to the excluded territories exemption (“the ETE”) in Chapter 11 of the controlled foreign companies legislation contained in Part 9A of TIOPA 2010.

The ETE exempts a controlled foreign company (“CFC”) resident in a territory where the CFC’s income is taxed at a rate similar to the UK main corporation tax rate. It does so in part by way of a list of territories that would qualify as an ‘excluded territory’ for the purposes of the ETE. Other requirements however also have to be met for the ETE to apply. These requirements can be found in section 371KB(1)(b) to (d) of TIOPA 2010. If the ETE applies for a CFC’s accounting period all of its profits are exempted from the CFC charge.

Regulation 1 provides for citation, commencement and effect, and regulation 2 for interpretation.

Regulation 3 and Part 1 of the Schedule provide a list of excluded territories for the purposes of the ETE.

Regulation 4 modifies the ETE which will apply in specified cases. The regulation provides that the requirements in section 371KB(1)(b) and (c) of TIOPA 2010 do not have to be met provided the CFC is resident in one of the territories specified and its business is not carried on through a foreign permanent establishment at any time during the relevant accounting period.

Regulation 5 and Part 2 of the Schedule provide that the ETE is unavailable in respect of a CFC unless a further requirement is met. This further requirement is that if the CFC carries on insurance business, none of that business is carried on in Luxembourg.

A Tax Information and Impact Note covering this instrument was published on 21 March 2012 alongside the draft CFC rules now contained in Part 9A of TIOPA 2010 and is available on the HMRC website at http://www.hmrc.gov.uk/thelibrary/tiins.htm. It remains an accurate summary of the impacts that apply to this instrument.