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

Exclusion: trading profits (income condition)

Section 371DH sets out the income condition that a controlled foreign company must satisfy in order to qualify for the trading profits exclusion from the CFC charge gateway, including a special rule for regulated banking businesses.

• For most CFCs, no more than 20% of their relevant trading income may derive directly or indirectly from UK resident persons or UK permanent establishments of non-UK resident companies
• Relevant trading income excludes income from UK sales of goods the CFC itself produced in its territory of residence
• For CFCs whose main business is regulated banking in their territory of residence, a stricter test applies: no more than 10% of total trading income may be UK-derived trading income, excluding interest from connected or associated UK resident companies
• Income from a UK resident company is disregarded for these tests where that company has elected for the foreign permanent establishment exemption and the corresponding expense is taken into account in calculating the exemption adjustment