Controlled Foreign Companies (Excluded Countries) Regulations 1998
| Jurisdiction | UK Non-devolved |
| Citation | SI 1998/3081 |
| Year | 1998 |
1998 No. 3081
INCOME TAX
The Controlled Foreign Companies (Excluded Countries) Regulations 1998
Made 9th December 1998
Laid before the House of Commons 10th December 1998
Coming into force 31th December 1998
The Commissioners of Inland Revenue, in exercise of the powers conferred on them by section 748(1)(e) and (1A) of the Income and Corporation Taxes Act 19881, hereby make the following Regulations:
Citation, commencement and effect
1.—(1) These Regulations may be cited as the Controlled Foreign Companies (Excluded Countries) Regulations 1998, shall come into force on 31st December 1998, and shall have effect with respect to any appropriate accounting period of a relevant company.
(2) In this regulation–
“appropriate accounting period” means an accounting period ending on or after the day to be appointed under section 199 of the Finance Act 19942(corporation tax self-assessment);
“relevant company” means a company resident in the United Kingdom that had a relevant interest in a controlled foreign company at any time during an accounting period of the controlled foreign company ending in an appropriate accounting period of the relevant company;
“relevant interest” shall be construed in accordance with section 752A3of the Taxes Act.
Interpretation
2.—(1) In these Regulations unless the context otherwise requires–
“controlled foreign company” shall be construed in accordance with section 747(2) of the Taxes Act;
“gains” in relation to a controlled foreign company means any gains of that company other than a gain accruing to the company on a disposal of an asset which, on the assumption that the company was within the charge to corporation tax, would have fallen to be treated as a chargeable gain and would not have been taken into account as a receipt in computing the company’s income or profits or gains or losses for the purposes of the Income Tax Acts;
“insurance company” means a company carrying on “long-term business” or “general business” within the meaning of section 1 of the Insurance Companies Act 19824;
“Schedule 1” and “Schedule 2” mean Schedule 1 and Schedule 2 respectively to these Regulations;
“section 748(1)(e)” means section 748(1)(e) of the Taxes Act;
“the Taxes Act” means the Income and Corporation Taxes Act 1988.
(2) For the purposes of these Regulations a company is resident in a territory if–
(a)
(a) by reason of the law of that territory relating to domicile, residence or place of management, the company is liable to tax in that territory, or
(b)
(b) if there is either no such law or such law does not apply to the company, the company is incorporated in that territory;
and references in these Regulations to the territory of residence of a company shall be construed accordingly.
(3) For the purposes of these Regulations a controlled foreign company is resident in a territory, within the meaning of paragraph (2), in an accounting period only if it is so resident throughout that accounting period.
(4) References in these Regulations to a branch or agency of a controlled foreign company are references to a branch or agency situated in a territory other than the territory of residence of the controlled foreign company.
Limitation on apportionment of chargeable profits of a controlled foreign company—specified territories
3. The territory in which a controlled foreign company is required to be resident as respects an accounting period for the purposes of section 748(1)(e) is–
(a) as respects an accounting period beginning before 9th July 1998, any territory specified in Part I or in Part II of Schedule 1;
(b) as respects an accounting period beginning on or after that date, any territory specified in Part I or in Part II of Schedule 2.
Limitation on apportionment of chargeable profits of a controlled foreign company—conditions to be satisfied
4.—(1) Paragraph (2) specifies the condition which is required to be satisfied as respects an accounting period, for the purposes of section 748(1)(e), by a controlled foreign company which is resident in a territory specified in Part I of Schedule 1 or, as the case may be, in Part I of Schedule 2, in that accounting period.
(2) The condition specified is that the requirement with respect to the controlled foreign company’s income and gains specified in regulation 5 is satisfied by the controlled foreign company in relation to that accounting period.
(3) Paragraph (4) specifies the conditions which are required to be satisfied as respects an accounting period, for the purposes of section 748(1)(e), by a controlled foreign company which is resident in a territory specified in column 1 of Part II of Schedule 1 or, as the case may be, in column 1 of Part II of Schedule 2, in that accounting period.
(4) The conditions specified in this paragraph are that the controlled foreign company–
(a)
(a) satisfies the requirement with respect to its income and gains specified in regulation 5 in relation to that accounting period, and
(b)
(b) at no time during that accounting period–
(i) is entitled to any tax exemption, tax reduction or other benefit, or
(ii) falls within any condition,
specified in column 2 of Part II of Schedule 1 or, as the case may be, in column 2 of Part II of Schedule 2, opposite the specification of the territory in which the controlled foreign company is resident.
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)
(a) £50,000 or, where that accounting period is less than twelve months in duration, that amount proportionately reduced, and
(b)
(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)
(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)
(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)
(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)
(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)
(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)
(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)
(a) the controlled foreign company concerned is an institution carrying on the business of banking, or an insurance company, and
(b)
(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...
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