Made - - - - |
3rd December 2012 |
Laid before the House of Commons |
5th December 2012 |
Coming into force - - |
1st January 2013 |
The Commissioners for Her Majesty’s Revenue and Customs make
these Regulations in exercise of the powers conferred by section
371KB(2) and (3) of the Taxation (International and Other Provisions)
Act 2010.
Citation, commencement and effect
1.—(1) These Regulations may be cited as the
Controlled Foreign Companies (Excluded Territories) Regulations 2012
and come into force on 1st January 2013.
(2) These Regulations have effect for accounting periods of CFCs
beginning on or after 1st January 2013.
Interpretation
2. In these Regulations—
“TIOPA 2010” means the Taxation (International and
Other Provisions) Act 2010;
“the Schedule” means the Schedule to these
Regulations.
Excluded territories
3. A territory listed in Part 1 of the Schedule is an
excluded territory for the purposes of Chapter 11 of Part 9A of TIOPA
2010 (the excluded territories exemption).
Modified excluded territories exemption to apply in specified
cases
4.—(1) For the purposes of Chapter 11 of Part 9A of
TIOPA 2010, the requirements of section 371KB(1)(b) and (c) of that
Act do not have to be met in order for the excluded territories
exemption to apply for a CFC’s accounting period if—
(a) for the purposes of that Chapter, the CFC is for the
accounting period resident in—
(i) Australia,
(ii) Canada,
(iii) France,
(iv) Germany,
(v) Japan, or
(vi) the United States of America;
(b) requirement A is met (if applicable); and
(c) requirement B is met.
(2) Requirement A is applicable only if the CFC is resident as
mentioned in paragraph (1)(a) by virtue of section 371TA(1)(b) of
TIOPA 2010.
(3) Requirement A is that the CFC would still be resident as
mentioned in paragraph (1)(a) were the following subsections to be
substituted for section 371KC(3) of TIOPA 2010—
“(3) But section 371TA(1)(b) is to be applied only if the
CFC or persons with interests in the CFC are subject to taxation
under the law of the territory in question on all of the
CFC’s income arising during the accounting period.
(3A) For the purposes of subsection (3), the CFC’s income
does not include any dividend or other distribution received, other
than one for which the company paying the dividend or other
distribution is entitled to a deduction against its profits for tax
purposes under the law of the territory in which it is
resident.”.
(4) Requirement B is that at no time during the accounting period
is the CFC’s business carried on, to any extent, through a
permanent establishment which the CFC has in a territory outside the
territory in which it is resident for the accounting period for the
purposes of Chapter 11 of Part 9A of TIOPA 2010.
Further requirement to be met for excluded territories exemption
to apply
5. For the purposes of Chapter 11 of Part 9A of TIOPA 2010,
Part 2 of the Schedule specifies a further requirement which must be
met in order for the excluded territories exemption to apply for a
CFC’s accounting period.
Jim Harra
Edward Troup
Two of the Commissioners for Her
Majesty’s Revenue and Customs
3rd December 2012
SCHEDULE
Regulations 3 and 5
PART 1
Excluded Territories
Afghanistan |
Fiji |
Panama |
Algeria |
Finland |
Papua New Guinea |
Angola |
France |
Peru |
Argentina |
Gabon |
Philippines |
Armenia |
Gambia |
Poland |
Aruba |
Germany |
Portugal |
Australia |
Ghana |
Puerto Rico |
Austria |
Greece |
Republic of Korea |
Azerbaijan |
Guyana |
Russia |
Bangladesh |
Honduras |
Saudi Arabia |
Barbados |
Iceland |
Senegal |
Belarus |
India |
Sierra Leone |
Belgium |
Indonesia |
Slovakia |
Belize |
Iran |
Slovenia |
Benin |
Israel |
Solomon Islands |
Bolivia |
Italy |
South Africa |
Botswana |
Ivory Coast |
Spain |
Brazil |
Jamaica |
Sri Lanka |
Brunei |
Japan |
Swaziland |
Burundi |
Kenya |
Sweden |
Cameroon |
Lesotho |
Tanzania |
Canada |
Libya |
Thailand |
China |
Luxembourg |
Trinidad and Tobago |
Colombia |
Malawi |
Tunisia |
Croatia |
Malaysia |
Turkey |
Cuba |
Malta |
Uganda |
Czech Republic |
Mexico |
Ukraine |
Democratic Republic of the
Congo |
Monaco |
United States of America |
Denmark |
Morocco |
Uruguay |
Dominican Republic |
Namibia |
Venezuela |
Ecuador |
Netherlands |
Vietnam |
Egypt |
New Zealand |
Zambia |
El Salvador |
Nigeria |
Zimbabwe |
Falkland Islands |
Norway |
|
Faroe Islands |
Pakistan |
|
PART 2
Specified further requirement
If at any time during the accounting period the CFC carries on
insurance business in relation to which the CFC is regulated in any
territory, none of that business is carried on in Luxembourg at that
time.
EXPLANATORY NOTE
(This note is not part of the
Regulations)
These Regulations exercise powers conferred by the Taxation
(International and Other Provisions) Act 2010 (c. 8) (“TIOPA
2010”) in relation to the excluded territories exemption
(“the ETE”) in Chapter 11 of the controlled foreign
companies legislation contained in Part 9A of TIOPA 2010.
The ETE exempts a controlled foreign company (“CFC”)
resident in a territory where the CFC’s income is taxed at a
rate similar to the UK main corporation tax rate. It does so in part
by way of a list of territories that would qualify as an
‘excluded territory’ for the purposes of the ETE. Other
requirements however also have to be met for the ETE to apply. These
requirements can be found in section 371KB(1)(b) to (d) of TIOPA
2010. If the ETE applies for a CFC’s accounting period all of
its profits are exempted from the CFC charge.
Regulation 1 provides for citation, commencement and effect, and
regulation 2 for interpretation.
Regulation 3 and Part 1 of the Schedule provide a list of excluded
territories for the purposes of the ETE.
Regulation 4 modifies the ETE which will apply in specified cases.
The regulation provides that the requirements in section 371KB(1)(b)
and (c) of TIOPA 2010 do not have to be met provided the CFC is
resident in one of the territories specified and its business is not
carried on through a foreign permanent establishment at any time
during the relevant accounting period.
Regulation 5 and Part 2 of the Schedule provide that the ETE is
unavailable in respect of a CFC unless a further requirement is met.
This further requirement is that if the CFC carries on insurance
business, none of that business is carried on in Luxembourg.
A Tax Information and Impact Note covering this instrument was
published on 21 March 2012 alongside the draft CFC rules now
contained in Part 9A of TIOPA 2010 and is available on the HMRC
website at www.hmrc.gov.uk/thelibrary/tiins.htm.
It remains an accurate summary of the impacts that apply to this
instrument.
EXPLANATORY MEMORANDUM
1. This explanatory memorandum has been prepared by HM
Revenue & Customs (“HMRC”) and is laid before the
House of Commons by Command of Her Majesty.
2. Purpose of the instrument
2.1 The Regulations provide a list of excluded territories for the
purposes of the excluded territories exemption (“ETE”)
and set out a further requirement for the ETE to apply. They also
provide a modified ETE exemption which will apply in specified cases
provided certain requirements are met.
3. Matters of special interest to the
Select Committee on Statutory Instruments
3.1 The Regulations replace the Controlled Foreign Companies
(Excluded Companies) Regulations (SI 1998/3081) which are revoked
from the date the Regulations take effect.
4. Legislative Context
4.1 Subsections (2) and (3) of section 371KB of Part 9A of the
Taxation (International and Other Provisions) Act 2010 (TIOPA) detail
the powers used by the Regulations. The powers are being used for the
first time in making the Regulations. The powers allow for, the list
of excluded territories to be provided, the requirements in
subsections (1)(b) and (c) to be disapplied or modified, and
specification of further requirements which need to be met in order
for the ETE to apply to a controlled foreign company
(“CFC”).
4.2 The ETE is an exemption from the CFC provisions in Part 9A of
TIOPA (“the CFC legislation”).
4.3 The CFC legislation itself will, in certain circumstances,
impose a charge (equivalent to corporation tax) on UK resident
companies in respect of overseas companies which are controlled from
the UK and in which the UK resident company has a specified interest.
There are various exemptions from the CFC legislation including the
ETE. The ETE broadly replaces the Excluded Countries Exemption
(mainly found in SI 1998/3081) which was part of the previous CFC
legislation (mainly found in Chapter IV of Part XVII of ICTA
1988).
5. Territorial Extent and
Application
5.1 The Regulations apply to all of the United Kingdom.
6. European Convention on Human
Rights
As the Regulations are subject to negative resolution procedure
and do not amend primary legislation, no statement is required.
7. Policy background
- What is being done and why
7.1 The CFC legislation, of which the ETE is part, is
anti-avoidance legislation, the aim of which is to prevent the
diversion of UK profits to low tax territories. Reform of the CFC
legislation is intended to improve the UK’s international tax
competitiveness whilst retaining adequate protection for the
UK’s corporate tax base.
7.2 Within the CFC legislation the purpose of the ETE is to exempt
those CFC’s that pose a low risk to the UK corporate tax base
due to their territory of residence. The ETE will broadly exempt CFCs
resident in territories where the CFC’s income is taxed at a
rate similar to the UK main corporation tax rate.
7.3 If the ETE applies for a CFC’s accounting period all of
its profits will be exempted from charge under the CFC
legislation.
7.4 Not applicable
8. Consultation outcome
8.1 A consultation document was published in June 2011 on
proposals for wider reform of the previous CFC legislation and
representations on this were extensive. A further consultation on the
draft CFC legislation (including the Regulations) took place from 6
December 2011.
8.2 As part of the consultation process HMRC (along with HM
Treasury) met with various interested parties including business and
their representatives and actively sought their input into the
proposals and the draft CFC legislation.
8.3 The outcome of the consultation was that business wanted the
ETE to have as many territories as possible on the excluded
territories list in the Regulations and to have only a few targeted
general conditions. It was considered that this would make the
exemption simpler to apply than the previous Excluded Countries
Exemption which the ETE replaces. Business also wanted to have
included in the ETE a modified exemption comprising a very short list
of excluded territories for which fewer conditions would apply.
Further information can be found in the Tax Information and Impact
Note published on HMRC website.
9. Guidance
9.1 Guidance on the operation of the ETE, of which the Regulations
form part, will be included in the wider update of the International
Manual concerning the CFC legislation. The Guidance will be published
on the HMRC website in due course.
10. Impact
10.1 The impact on business, charities or voluntary bodies is
negligible as those businesses already claiming exemption under the
Excluded Countries Exemption will in the vast majority of cases still
be eligible for the ETE.
10.2 The impact on the public sector is nil.
10.3 A Tax Information and Impact Note covering this instrument
was published on 21 March 2012 alongside the draft CFC rules now
contained in Part 9A of TIOPA 2010 and is available on the HMRC
website at www.hmrc.gov.uk/thelibrary/tiins.htm.
It remains an accurate summary of the impacts that apply to this
instrument.
11. Regulating small business
11.1 The Regulations apply to small business in the same way as
larger business. It will however be larger businesses that have CFCs
as part of their group structure which will fall within the CFC
legislation. No special approach for small business is therefore
necessary.
12. Monitoring & review
12.1 HMRC will keep the Regulations under review to ensure that
they meet the policy objectives set out above in section 7.
13. Contact
13.1 Mary Sharp at HMRC Tel: 0207 147 2656 or 0207 147 0797
(email: mary.sharp@hmrc.gsi.gov.uk)
can answer any queries regarding the Regulations.