What is the CFC charge gateway under section 371BB of TIOPA 2010?

The CFC charge gateway is a two-step process in section 371BB that determines whether a controlled foreign company's profits are subject to UK tax. Step 1 checks if any of Chapters 4 to 8 apply. Step 2 measures how much of the CFC's assumed total profits fall within those applicable Chapters, with only those profits passing through the gateway.

What happens at Step 1 of the CFC charge gateway?

At Step 1, you examine the CFC's accounting period and determine, following the Chapter 3 rules, whether any of Chapters 4 to 8 apply. Each Chapter covers a different category of potentially chargeable profits, such as UK-activity profits or intellectual property profits. If none of the five Chapters applies, no assumed total profits pass through the gateway and no UK tax charge arises.

How does Step 2 of the CFC charge gateway operate?

If one or more of Chapters 4 to 8 applies at Step 1, Step 2 requires you to calculate how much of the CFC's assumed total profits falls within the scope of those applicable Chapters. Only the profits falling within at least one relevant Chapter pass through the gateway and become potentially chargeable to United Kingdom tax.

Can profits passing through the CFC charge gateway be reduced or exempted?

Yes. Even after passing through the gateway, profits can be reduced by Chapter 9 exemptions for qualifying loan relationship profits and by adjustments under section 371JE linked to the exempt period exemption in Chapter 10. These provisions may reduce or entirely eliminate the CFC profits that would otherwise be subject to a United Kingdom CFC charge.

Taxation (International and Other Provisions) Act 2010 section 371BB

The CFC charge gateway

Section 371BB sets out the two-step process for determining whether, and to what extent, a controlled foreign company's profits are subject to a UK tax charge.

A two-step gateway test determines which CFC profits are potentially chargeable to UK tax.
Step 1 checks whether any of the five charging Chapters (4 to 8) apply; if none applies, no profits pass through the gateway.
Step 2 measures how much of the CFC's assumed total profits fall within the applicable Chapters — only those profits pass through.
Profits that would otherwise pass through the gateway may still be reduced or removed by exemptions for qualifying loan relationship profits and the exempt period rules.

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