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

Companies which are participants in offshore funds

Section 371BF provides relief from the CFC charge for UK companies that hold interests in controlled foreign companies which are offshore funds, where the company's interest unexpectedly crosses the 25 per cent threshold due to the fluctuating nature of fund investor bases.

• A UK company participating in an offshore fund that is a CFC will not be a chargeable company if it reasonably believed its interest would stay below the 25 per cent threshold
• This reasonable belief must be held at the start of the accounting period (or when the interest is first acquired) and whenever the company's interest in the fund changes during the period
• If the 25 per cent threshold is breached, the breach must not be attributable to any action taken by the company itself, or by any connected or associated person, that could reasonably have been expected to cause the threshold to be exceeded
• The relief recognises that offshore funds naturally gain and lose investors over time, which can cause a participant's proportionate holding to fluctuate beyond its control