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

The steps

Section 371DB sets out the eight-step process for determining the profits of a controlled foreign company (CFC) that are attributable to activities carried out in the United Kingdom, and which therefore fall within the CFC charge gateway in Chapter 4.

• The process identifies CFC assets and risks that generate profits, then traces which significant people functions (SPFs) relating to those assets and risks are performed in the UK.
• Where UK-based SPFs exist, the CFC is treated as if it had a UK permanent establishment carrying out those functions, and profits are attributed to that notional establishment.
• Assets or risks that contribute only a negligible amount to the CFC's profits may be excluded, provided they are also negligible when taken together as a whole.
• Further exclusions may reduce the resulting profits where UK activities are a minority of total activities, where economic value is created outside the UK, where arrangements reflect independent company behaviour, or where the profits are trading profits meeting certain conditions.