Corporation Tax Act 2009 section 18ID

The tax exemption

Section 18ID explains how the controlled foreign company (CFC) tax exemption rules are adapted when testing whether the anti-diversion rule applies to a foreign permanent establishment.

• The CFC tax exemption rules from TIOPA 2010 are applied with modifications when assessing whether profits diverted through a foreign permanent establishment qualify for exemption from the anti-diversion rule.
• References to the CFC's local chargeable profits are replaced with the "adjusted relevant profits amount" — this is the measure of the permanent establishment's profits used throughout the foreign PE exemption rules.
• The "corresponding UK tax" is calculated as the corporation tax that would be due on the adjusted relevant profits amount if it were fully taxable in the UK, ignoring any foreign tax credits and using the average UK corporation tax rate where more than one rate applies during the period.
• The CFC's territory of residence is determined by the assumption already built into the foreign PE exemption rules, rather than by the standard CFC residence test.