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

Companies holding shares as trading assets etc.

Section 371BG removes or reduces the CFC charge where the chargeable company already treats its shareholding in the CFC as a trading asset, meaning gains and distributions on those shares are already subject to UK corporation tax.

• Where a UK company holds shares in a CFC as trading assets and already brings gains and distributions on those shares into its corporation tax computation, the CFC charge on those shares is switched off to prevent double taxation.
• The relief works by stripping out, from the percentages used to calculate the CFC charge (the company's share of the CFC's chargeable profits and creditable tax), any portion attributable to the relevant shareholding.
• Special provision ensures the relief also applies where the chargeable company holds its interest through an open-ended investment company or authorised unit trust, and the CFC is an offshore bond fund — in that case, the conditions about gains and distributions being taxable are treated as met even though the fund fails the qualifying investments test.
• This relief is subject to an override for companies carrying on basic life assurance and general annuity business, which can restore the CFC charge in certain circumstances.