What does section 179 of TIOPA 2010 do?

Section 179 allows the disadvantaged party to a transaction to claim a compensating adjustment where the advantaged party is a controlled foreign company. It deems the CFC to be a person with a UK tax advantage, even though the CFC itself is not subject to UK corporation tax, enabling the compensating adjustment provisions to apply.

Why is a special rule needed for CFCs under the transfer pricing compensating adjustment provisions?

A CFC is not UK-resident and does not itself gain any UK tax advantage from transfer pricing adjustments. Without section 179, the CFC would not qualify as the advantaged person under the standard compensating adjustment rules, leaving the disadvantaged party with no route to claim a corresponding downward adjustment to its own tax liability.

Who is treated as the advantaged person for procedural purposes under section 179?

References to the advantaged person are extended to include any UK chargeable company on which a CFC charge is imposed. In practice, the UK-resident company controlling the CFC submits returns reporting the CFC's profits and receives HMRC notices, so it is treated as the advantaged person for procedural purposes.

Are CFC exemption claims taken into account when determining whether the CFC charge has increased?

No. When determining whether a transfer pricing adjustment has increased the CFC charge and when identifying which companies bear that charge, any claims for exemptions under Chapter 9 of the CFC rules are disregarded. This ensures the test is applied on a consistent, unadjusted basis across all chargeable companies.

Taxation (International and Other Provisions) Act 2010 section 179

Compensating payment if advantaged person is controlled foreign company

Section 179 allows a compensating adjustment for the disadvantaged party to a transaction where the advantaged party is a controlled foreign company (CFC) and transfer pricing has increased the CFC charge on UK chargeable companies.

Where transfer pricing rules apply to a CFC's transactions and this increases the total CFC charge on UK chargeable companies, the CFC is treated as if it were a person gaining a UK tax advantage, enabling the disadvantaged party to claim a compensating adjustment.
References to the "advantaged person" in the compensating adjustment rules are extended to include any UK chargeable company on which a CFC charge is imposed, and references to corporation tax are extended to include the CFC charge.
For the purposes of determining whether the CFC charge has increased and identifying the chargeable companies, any claims for exemptions under Chapter 9 of the CFC rules are disregarded.
All terms used in this section that are defined in the CFC legislation (Part 9A of TIOPA 2010) carry the same meaning as in that legislation.

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