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Controlled foreign companies: draft guidance

printer Mail

HMRC has invited comments by the end of November on additional draft guidance on the new regime for controlled foreign companies and permanent establishments.

A short introduction to the new rules, and draft guidance on chapters 7 (captive insurance business) and 10 (exempt period exemption), have been added to the draft guidance page on the HMRC website.

HMRC has said it intends to consult on the draft guidance throughout the rest of 2012. ‘However we would prefer substantive comments to be made by the end of October 2012 to provide time for comments to be properly considered before the draft guidance is incorporated into the International Manual in January 2013. Some draft guidance has been published in October 2012 and HMRC will be happy to take comments on these later published chapters up to the end of November 2012,’ it said.

In its introduction to the new CFC regime, HMRC said: ‘Reform of the CFC rules is the final step in implementing change to the corporation tax regime to charge tax on a more territorial basis. Subject to limited specific rules that are needed to protect the UK tax base (and the elective basis of foreign branch exemption), corporation tax will be charged only on profits that arise from activities or assets located in the UK. This is accomplished by the dividend exemption introduced by FA 2009, the foreign branch exemption in FA 2011 and now CFC reform in FA 2012.’

Key features of the FA 2012 reform include: ‘1: The introduction of a “gateway”. Only those profits that fall within the terms of the gateway are brought within the CFC charge. 2: A 75% reduction in the CFC charge on profits from qualifying loan relationships. This is referred to as the finance company partial exemption … In some cases the exempt proportion may increase to 100%.’