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

Control determined by reference to accounting standards

Section 371RE establishes an accounting-based test for determining whether a person controls a foreign company for the purposes of the controlled foreign companies (CFC) rules, using the parent–subsidiary relationship as defined by Financial Reporting Standard 102.

• A person controls a company if it is that company's parent as defined by Financial Reporting Standard 102 (FRS 102), regardless of whether the person actually prepares consolidated accounts under that standard
• The company will only be treated as a CFC under this test if a "50% condition" is also satisfied at the relevant time
• The 50% condition requires that at least 50% of the foreign company's chargeable profits would be apportioned to the controlling person and any of its UK resident subsidiaries
• To test whether the 50% condition is met, you assume the company is a CFC, that the point in time is an accounting period, and that the normal CFC charging rules apply for that assumed period