Introduction Summary
1.Section 36 provides for the amendment of the Controlled Foreign Company (CFC) rules in Chapter 4 of Part 17 of the Income and Corporation Taxes Act 1988 (ICTA). The detailed amendments are in Schedule 16.
2.Part 1 of the Schedule repeals the exemption from the CFC rules for overseas companies which pay most of their profits back to shareholders in the United Kingdom. Part 2 of the Schedule provides for the amendment of the special rules for holding companies in the exempt activities exemption. It removes the rules providing exemption for ‘superior holding companies’ and ‘non-local holding companies’. The exemption will in future only relate to the third category, local holding companies.
3.Parts 1 and 2 have effect in relation to a CFC’s accounting periods beginning on or after 1 July 2009. Provision is made to split accounting periods which straddle this date.
4.Part 3 of the Schedule contains an amendment consequential to the legislation in Schedule 15, Finance Act 2009. It provides for the chargeable profits of a CFC to be reduced in certain circumstances to avoid double taxation.
5.The changes introduced by this Section are part of the package of measures being introduced as a result of the Government’s review of the taxation of foreign profits.