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

Anti-avoidance

Section 371LC sets out anti-avoidance rules that can prevent a controlled foreign company from benefiting from the low profits exemption.

• The low profits exemption is denied where an arrangement has been entered into with the main purpose (or one of the main purposes) of securing the exemption for one or more accounting periods of the CFC.
• The exemption is also denied where the CFC's business is wholly or mainly the provision of UK intermediary services — that is, where a UK resident individual performs services for a client through the CFC rather than under a direct contract.
• A further restriction applies where the CFC's assumed taxable total profits are affected by the group mismatch scheme rules, which exclude certain loan relationship or derivative contract amounts from being brought into account.
• These rules are designed to prevent the low profits exemption from being exploited through artificial arrangements, personal service company structures routed offshore, or mismatches within group financing.