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

Exclusion: trading profits (management expenditure condition)

Section 371DI sets out the management expenditure condition that can exclude a controlled foreign company's trading profits from the CFC charge, based on how much of the management of the CFC's assets and risks is carried out from the UK.

• The management expenditure condition is met if UK-based management expenditure is no more than 20% of the CFC's total related management expenditure for the accounting period.
• Total related management expenditure covers costs of employing or engaging staff and individuals who manage or control the CFC's relevant assets and risks, including expenditure on related companies that provide such personnel.
• Where the 20% threshold is breached overall, a fallback 50% test applies on an asset-by-asset or risk-by-risk basis — trading profits from any asset or risk where UK management expenditure is no more than 50% of the total for that asset or risk can still be excluded.
• Where it is not reasonably practicable to separate individual assets or risks for the purposes of the 50% test, they may be grouped together and assessed collectively.