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

Legal and economic control: the 40% rule

Section 371RC introduces an alternative test, known as the 40% rule, for determining whether a non-UK resident company is a controlled foreign company (CFC) where two persons jointly control it.

• The rule applies where exactly two persons control a non-UK resident company and one controller is UK resident while the other is not
• The UK resident controller must hold interests, rights and powers representing at least 40% of the total holdings, rights and powers through which the two controllers control the company
• The non-UK resident controller must hold at least 40% but no more than 55% of those same holdings, rights and powers
• If both conditions are met, the company is treated as a CFC even if it would not otherwise qualify as one under the standard control tests