What does section 18IA of the Corporation Tax Act 2009 do?

Section 18IA adapts the CFC excluded territories exemption from Chapter 11, Part 9A of TIOPA 2010 so it can apply within the anti-diversion rule for multinational groups. It modifies CFC-specific provisions, replacing references to the CFC with company X and stripping out rules only relevant to actual controlled foreign companies.

Which CFC provisions are removed or modified under section 18IA?

Section 18IA removes the rules on determining CFC residence, category C income provisions, permanent establishment rules for category A income, and parts of the category D income and threshold amount calculations. References to the CFC and its territory are replaced with references to company X and its assumed territory of residence.

How are references to equity, debt, and intellectual property treated under section 18IA?

Under section 18IA, references to the CFC's equity, debt, or intellectual property are redirected to company X's actual equity, debt, or intellectual property. Importantly, the assumption in section 18I(3)(a) is not applied, so the exemption tests are grounded in the real commercial characteristics of the foreign company.

When does the excluded territories exemption prevent the anti-diversion rule from applying?

If, after applying the modified CFC excluded territories rules under section 18IA, company X's income falls within the permitted thresholds and none of the remaining income categories are breached, the excluded territories exemption is satisfied and the anti-diversion rule under section 18G does not apply to that transaction.

Corporation Tax Act 2009 section 18IA

The excluded territories exemption

Section 18IA explains how the controlled foreign companies (CFC) excluded territories exemption is adapted when applying the anti-diversion rule for multinational groups.

The CFC excluded territories exemption (Chapter 11, Part 9A, TIOPA 2010) can apply to exempt a transaction from the anti-diversion rule, but with a number of important modifications.
Several CFC-specific provisions are removed, including the rules on determining CFC residence, category C income, permanent establishments in excluded territories, and certain parts of the category D income and threshold amount rules.
References to the CFC and its territory are replaced with references to "company X" (the foreign group company involved in the diverted profits arrangement) and its assumed territory of residence.
References to the CFC's equity, debt, or intellectual property are read as referring to company X's actual equity, debt, or intellectual property — not the hypothetical CFC assumed under the anti-diversion rule.

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