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

The basic rule

Section 371MB sets out the low profit margin exemption for controlled foreign companies (CFCs), which applies where a CFC's accounting profits do not exceed 10% of its relevant operating expenditure.

• A CFC qualifies for the low profit margin exemption if its accounting profits are no more than 10% of its relevant operating expenditure for the accounting period.
• Accounting profits for this purpose are calculated before any deduction for interest.
• Relevant operating expenditure excludes the cost of goods purchased by the CFC unless those goods are used in the territory where the CFC is resident.
• Any expenditure that gives rise, directly or indirectly, to income of a person related to the CFC is also excluded from relevant operating expenditure.