(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.