What conditions must be met for section 371MC to deny the low profit margin exemption?

Three conditions must be satisfied: an arrangement must have been entered into at some point in time; the low profit margin exemption would have applied for the relevant accounting period as a consequence of that arrangement; and the main purpose or one of the main purposes of the arrangement must be to secure the exemption for one or more accounting periods.

Does section 371MC catch legitimate commercial arrangements that incidentally result in a CFC qualifying for the low profit margin exemption?

No. The test is purpose-based, so legitimate commercial arrangements that incidentally result in a CFC qualifying for the low profit margin exemption should not be caught, provided that securing the exemption was not a main purpose of those arrangements. Only arrangements with the exemption as a main purpose are denied.

Can section 371MC apply to arrangements entered into outside the relevant accounting period?

Yes. The test examines arrangements entered into at any time, not just those made during the relevant accounting period itself. If an arrangement was put in place before or after the period but causes the exemption to apply for that period, section 371MC can still deny the exemption provided the purpose test is met.

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

Q: What does section 371MC of TIOPA 2010 do?

Section 371MC is an anti-avoidance provision that denies the low profit margin exemption for a controlled foreign company's accounting period where arrangements have been entered into with the main purpose, or one of the main purposes, of securing that exemption. It prevents manipulation of CFC results to qualify for the exemption under United Kingdom law.

Anti-avoidance

Section 371MC prevents the low profit margin exemption from applying where arrangements have been entered into with the main purpose of securing that exemption.

The low profit margin exemption is denied for a CFC's accounting period if an arrangement has been put in place that causes the exemption to apply
The arrangement must have as its main purpose, or one of its main purposes, ensuring that the low profit margin exemption is available
The denial applies whether the arrangement is aimed at securing the exemption for a single accounting period or for multiple accounting periods of the CFC
The test looks at arrangements entered into at any time, not just those made during the relevant accounting period itself

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