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

Relief against sum charged

Section 371UD provides relief mechanisms that reduce the CFC charge on a UK company, primarily by giving credit for overseas taxes already paid by the CFC and by allowing the CFC charge to be reduced where the CFC's profits have already been subject to UK tax or have been distributed as dividends that qualify for exemption.

• The CFC charge on a chargeable company is reduced by creditable tax, which includes foreign taxes paid by the CFC on its chargeable profits, calculated in a similar manner to double taxation relief under normal corporation tax rules.
• If the CFC's assumed total profits have already been partly charged to UK corporation tax (for example, because they include UK-source income taxed directly), the CFC charge is reduced proportionally to avoid double taxation of those same profits.
• Where the CFC pays dividends to the chargeable company and those dividends would be exempt from UK tax (for instance under the dividend exemption rules), the CFC charge is reduced by the amount of the charge that relates to the profits out of which those dividends were paid.
• The total reductions from creditable tax and UK tax already charged cannot exceed the CFC charge itself, ensuring the relief cannot create a negative liability or a repayment.

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