Finance Act 2018

Controlled foreign companies

27. (1) The Principal Act is amended by inserting the following Part after Part 35A:

“PART 35B

Implementation of Articles 7 and 8 of Council Directive (EU) 2016/1164 of 12 July 2016 (Controlled Foreign Companies)

Chapter 1

Interpretation

Interpretation

835I. (1) In this Part—

‘accounting profit’, in relation to an accounting period of a controlled foreign company, means the amount of profit, before taxation, shown in the profit and loss account, without regard to any—

(a) capital gains or capital losses, or

(b) dividends or other distributions which would be exempted from the charge to tax in determining the controlled foreign company’s corresponding chargeable profits in the State;

‘amount of foreign tax’ means the amount of any tax paid or borne by a controlled foreign company in respect of the controlled foreign company’s profits for the accounting period;

‘arrangement’ means—

(a) any transaction, action, course of action, course of conduct, scheme, plan or proposal,

(b) any agreement, arrangement, understanding, promise or undertaking, whether express or implied and whether or not enforceable or intended to be enforceable by legal proceedings, and

(c) any series of or combination of the circumstances referred to in paragraphs (a) and (b),

whether entered into or arranged by one or two or more persons—

(i) whether acting in concert or not,

(ii) whether or not entered into or arranged wholly or partly outside the State, or

(iii) whether or not entered into or arranged as part of a larger arrangement or in conjunction with any other arrangement or arrangements,

but does not include an arrangement referred to in section 826;

‘chargeable company’ means a controlling company, or a company connected with the controlling company, which performs, either itself or through a branch or agency, relevant Irish activities on behalf of a controlled foreign company group;

‘chargeable income’ means the undistributed income of a controlled foreign company which is subject to a controlled foreign company charge;

‘company’ means a body corporate or an unincorporated association;

‘connected’ shall be construed in accordance with section 10;

‘controlled foreign company’ means a company which is—

(a) not resident in the State, and

(b) controlled by a company or companies resident in the State;

‘controlled foreign company charge’ means a charge made under section 835R(2);

‘controlled foreign company group’ means the controlled foreign companies, taken together, of a controlling company;

‘controlling company’ means a company resident in the State which controls a controlled foreign company;

‘corresponding chargeable profits in the State’ means those profits or gains of a controlled foreign company which would be the controlled foreign company’s profits or gains for corporation tax or capital gains tax purposes for an accounting period if the assumptions specified in section 835O were to apply to that company;

‘corresponding corporation tax in the State’ means the amount of corporation tax and capital gains tax which would be chargeable in the State in respect of the controlled foreign company’s corresponding chargeable profits in the State for the accounting period in accordance with section 835P if the assumptions specified in section 835O were to apply to the company;

‘creditable tax’ shall be construed in accordance with section 835S;

‘EEA Agreement’ means the Agreement on the European Economic Area signed at Oporto on 2 May 1992, as adjusted by the Protocol signed at Brussels on 17 March 1993;

‘foreign chargeable profits’ means—

(a) the profits of a controlled foreign company as determined for tax purposes under the laws of the controlled foreign company’s territory of residence, or

(b) where the laws of the controlled foreign company’s territory of residence do not require profits to be determined for tax purposes, the profits of the controlled foreign company as determined in accordance with the generally accepted accounting practice applicable in the controlled foreign company’s territory of residence;

‘foreign company charge’ means a charge under the laws of a territory, other than the State, which is similar to the controlled foreign company charge;

‘key entrepreneurial risk-taking function’ shall be construed in a manner consistent with the use of that term in the OECD Report;

‘non-trading income’ means the income of a controlled foreign company which would be included in the controlled foreign company’s corresponding chargeable profits in the State if the assumptions specified in section 835O were to apply to the company, other than income which would be chargeable to tax under Case I or II of Schedule D, were those assumptions to apply;

‘OECD Report’ means the 2010 Report on the Attribution of Profits to Permanent Establishments of the Organisation for Economic Co-Operation and Development dated 22 July 2010;

‘profit and loss account’, in relation to a controlled foreign company, means the profit and loss account, income statement or equivalent as prepared in accordance with international accounting standards or in accordance with generally accepted accounting practice, but where—

(a) accounts are not prepared in accordance with international accounting standards or generally accepted accounting practice, or

(b) no accounts are prepared for the accounting period in question,

that expression means the profit and loss account which would be prepared in accordance with generally accepted accounting practice;

‘relevant assets and risks’ means the assets which a controlled foreign company has, or has had at any time, and the risks which a controlled foreign company bears, or has borne at any time, where those assets or risks would not have been employed or undertaken, as the case may be, but for relevant functions performed in the State on behalf of the controlled foreign company;

‘relevant function’ means a significant people function or a key entrepreneurial risk-taking function;

‘relevant Irish activities’ means relevant functions performed in the State on behalf of a controlled foreign company group, where such relevant functions are relevant to—

(a) the legal or beneficial ownership of the assets included in the relevant assets and risks of the company or companies in the controlled foreign company group, or

(b) the assumption and management of the risks included in the relevant assets and risks of the company or companies in the controlled foreign company group;

‘relevant Member State’ means a state, other than the State, which is a Member State of the European Union, or not being such a Member State, a state which is a contracting party to the EEA Agreement;

‘significant people function’ shall be construed in a manner consistent with the use of that term in the OECD Report;

‘tax advantage’ means—

(a) a reduction, avoidance or deferral of any charge or assessment to tax, including any potential or prospective charge or assessment, or

(b) a refund of or a payment of an amount of tax, or an increase in an amount of tax, refundable or otherwise payable to a person including any potential or prospective amount so refundable or payable,

arising out of or by reason of an arrangement, including an arrangement where another arrangement would not have been undertaken or arranged to achieve the results or any part of the results, achieved or intended to be achieved by the arrangement;

‘undistributed income’ shall be construed in accordance with section 835Q.

(2) For the purposes of this Part, a company shall be treated as an ‘associated company’ of another company where—

(a) one of them, directly or indirectly, possesses or is beneficially entitled to, or is entitled to acquire, not less than 25 per cent of the share capital or issued share capital of the other company,

(b) one of them, directly or indirectly, is entitled to exercise, or to acquire the rights to exercise, not less than 25 per cent of the voting power of the other company,

(c) one of them is beneficially entitled to not less than 25 per cent of any profits available for distribution to equity holders of the other company, or

(d) in respect of those companies, a third person—

(i) directly or indirectly—

(I) possesses or is beneficially entitled to, or is entitled to acquire, not less than 25 per cent of the share capital or issued share capital of each of them, or

(II) is entitled to exercise, or to acquire the rights to exercise, not less than 25 per cent of the voting power of each of them,

or

(ii) in respect of each of them, is beneficially entitled to not less than 25 per cent of any profits available for distribution to equity holders in the company.

Meaning of ‘control’

835J. (1) For the purposes of this Part, a person shall be taken to have control of a company if such person exercises, or is able to exercise or is entitled to acquire, control, whether direct or indirect, over the company’s affairs, and in particular, but without prejudice to the generality of the foregoing, if such person possesses or is entitled to acquire—

(a) the greater part of the share capital or issued share capital of the company or of the voting power in the company,

(b) such part of the issued share capital of the company as would, if the whole of the income of the company were distributed among the participators (without regard to any rights which such person or any other person has as a loan creditor), entitle such person to receive the greater part of the amount so distributed,

(c) such rights as would, in the event of the winding up of the company or in any other circumstances, entitle such person to receive the greater part of the assets of the company which would then be available for distribution among the participators, or

(d) any part of the issued share capital of the company and thereby control the composition of its board of directors.

(2) For the purposes of subsection (1), a person shall be treated as entitled to acquire anything which such person is entitled to acquire at a future date or will at a future date be entitled to acquire.

(3) For the purposes of subsection (1), there shall be attributed to any person any rights or powers of a nominee for such person, that is, any rights or powers which another person possesses on such person’s behalf or may be required to exercise on such person’s direction or behalf.

(4) For the purposes of subsection (1), there may also be attributed to any person all the rights and powers of—

(a) any associated company, within the meaning of section 835I(2), of such person,

(b) any company of which such person has, or such person and associates of such person have, control,

(c) any 2 or more companies of which such person has, or such person and associates of such person have, control,

(d) any associate of such person, or

(e) any 2 or more associates of such person,

including the rights and powers attributed to a company or associate under subsection (3), but excluding those attributed to an associate under this subsection, and such attributions shall be made under this subsection as will result in the company being treated as under the control of persons resident in the State if it can be so treated.

(5) In this section, ‘participator’, ‘associate’, ‘director’ and ‘loan creditor’ have the same meanings as they have in Part 13.

Accounting periods

835K. (1) For the purposes of this Part, an accounting period of a controlled foreign company shall begin—

(a) where the company was not a controlled foreign company immediately prior to a date on which it became a controlled foreign company, on that date, and

(b) where the company continues to be a controlled foreign company, immediately after the end of the previous accounting period,

and references in this subsection and subsection (2) to an accounting period are references to such a period as determined by virtue of the application, by subsection (3), of certain provisions of section 27 for the purposes of this section.

(2) An accounting period of a controlled foreign company shall end—

(a) when the company ceases to be a controlled foreign company in accordance with this Chapter,

(b) when the company becomes or ceases to be resident in a territory, or

(c) when the company ceases to have any sources of income.

(3) Without prejudice to subsections (1) and (2) of this section, subsections (3), (5) and (7) of section 27 shall apply for the purpose of this section as they apply for the purposes of corporation tax, except to the extent those provisions relate to a company becoming or ceasing to be within the charge to corporation tax.

(4) Where it appears to a Revenue officer that the beginning or end of any accounting period of a controlled foreign company is uncertain, he or she may determine as an accounting period of the company such period, not exceeding 12 months, as appears to him or her appropriate, and that period shall be treated for all purposes as an accounting period of the company unless the officer on further facts coming to his or her knowledge sees fit to revise it.

(5) Where the Revenue Commissioners make a determination under subsection (4), they shall issue a notice in writing of the determination to the controlling company of the controlled foreign company concerned.

(6) A controlling company aggrieved by a determination made under subsection (4) may appeal such determination to the Appeal Commissioners, in accordance with section 949I, within the period of 30 days after the date of the notice issued under subsection (5) in respect of the determination.

Application of Part to a controlled foreign company

835L. Where in any accounting period a company is a controlled foreign company, the provisions of this Part shall apply accordingly in relation to that accounting period, except as otherwise provided for in this Part.

Determination of residence

835M. (1) Subject to subsection (6), for the purposes of this Part, a controlled foreign company shall be regarded as being resident for an accounting period in the territory in which, throughout that period, it is subject to tax by reason of domicile, residence or place of management.

(2) Where there are two or more territories falling within subsection (1) in any accounting period, the company shall in that accounting period be regarded as being resident—

(a) where, throughout the accounting period, the company’s place of effective management is situated in one of the territories, in that territory,

(b) where, throughout the accounting period, the company’s place of effective management is situated in two or more of the territories and immediately before the end of the accounting period more than 50 per cent of the company’s assets are situated in a territory, in the territory in which those assets are situated, or

(c) where neither paragraph (a) nor (b) applies and immediately before the end of the accounting period more than 50 per cent of the company’s assets are situated in one of the territories, in that territory.

(3) Where in an accounting period there is no territory falling within either of subsection (1) or (2), the company shall be regarded as being resident in the territory in which it is incorporated or formed.

(4) For the purpose of subsection (2), the amount of the company’s assets are to be determined by reference to their market value immediately before the end of the accounting period.

(5) In this section, ‘market value’ shall be construed in accordance with section 548.

(6) Nothing in this section shall require a company to be regarded as being resident in a territory other than the territory in which it is regarded, for the purposes of any arrangements having the force of law by virtue of section 826(1), as being resident.

Adjustment to amount of foreign tax

835N. (1) Where an amount of foreign tax is paid or borne by a company under the laws of the territory in which the controlled foreign company is resident in respect of the aggregate profits of that controlled foreign company and one or more other companies (in this subsection referred to as the ‘consolidated companies’), taken together as a single taxable entity, the amount of tax shall be apportioned between the consolidated companies on a just and reasonable basis for the purpose of calculating the amount of foreign tax paid or borne by the controlled foreign company.

(2) This subsection applies where an amount of income of a controlled foreign company is taken into account in determining the foreign chargeable profits of the controlled foreign company for an accounting period, but such income is not taken into account in determining the corresponding chargeable profits in the State of the company for the accounting period.

(3) Where subsection (2) applies, the income to which subsection (2) refers shall not be taken into account in determining the amount of foreign tax paid or borne by the controlled foreign company for the accounting period.

(4) This subsection applies where an amount of expenditure of a controlled foreign company is not taken into account in determining foreign chargeable profits of a controlled foreign company for an accounting period, but such expenditure is taken into account in determining the corresponding chargeable profits in the State of the company for the accounting period.

(5) Where subsection (4) applies, the expenditure to which subsection (4) refers shall be taken into account in determining the amount of foreign tax paid or borne by the controlled foreign company for the accounting period.

Corresponding chargeable profits in the State

835O. (1) For the purpose of determining the corresponding chargeable profits in the State of a controlled foreign company for an accounting period, it shall be assumed—

(a) (i) that the company is resident in the State at all times during the accounting period,

(ii) if the accounting period is not the company’s first accounting period, that the company has been resident in the State since its first accounting period,

(iii) except where the company ceases to be regarded as a controlled foreign company in accordance with this Chapter in the accounting period, that the company will continue to be resident in the State in subsequent accounting periods, and

(iv) where the company was resident in the State in the accounting period immediately prior to its first accounting period, that the residence assumed in accordance with this paragraph is not continuous with its residence in the State immediately prior to its first accounting period,

(b) that the company is, has been and will continue to be within the charge to corporation tax,

(c) that the accounting periods of the company, as determined in accordance with section 835K, are accounting periods for corporation tax purposes,

(d) that there is no change in the place or places at which the company carries on its activities,

(e) that the company is not a close company within the meaning of section 430,

(f) where any allowance, credit, deduction, relief or repayment under the Tax Acts is dependent upon the making of a claim or election, that the company has made that claim or election which would give the maximum amount of allowance, credit, deduction, relief or repayment and that the claim or election was made within any applicable time limit,

(g) that the company is neither a member of a group of companies nor a member of a consortium for any purposes of the Tax Acts, and

(h) that the company is not entitled to relief under Part 35 in respect of any amount of income, profits or gains for tax paid on such income, profits or gains under the laws of the company’s territory of residence.

(2) In this section, references to the first accounting period of a controlled foreign company are references to the accounting period in which the company first falls to be regarded as a controlled foreign company in accordance with this Chapter.

(3) Nothing in this section affects any liability to, or the computation of, corporation tax in respect of a trade which is carried on by a controlled foreign company through a branch or agency in the State.

Corresponding corporation tax in the State

835P. The corresponding corporation tax in the State of a controlled foreign company for an accounting period shall be the sum of—

(a) the corporation tax that would be charged at the rate specified in section 21(1)(f) on that part of the corresponding chargeable profits in the State for the accounting period which would consist of profits chargeable to tax under Case I or II of Schedule D,

(b) the corporation tax that would be charged at the rate specified in section 21A(3) on that part of the corresponding chargeable profits in the State for the accounting period which would consist of profits which would be chargeable to tax under Case III, IV or V of Schedule D, and

(c) the capital gains tax that would, in accordance with section 78 or otherwise, be charged on that part of the corresponding chargeable profits in the State for the accounting period which would consist of chargeable gains,

if, for the purpose only of determining under which Case of Schedule D the corresponding chargeable profits would be chargeable to tax, the assumption in section 835O(1)(d) did not apply and the activities carried on by the controlled foreign company in its territory of residence were deemed to be carried on in the State.

Chapter 2

Controlled foreign company charge

Undistributed income

835Q. (1) For the purposes of this Part, the undistributed income of a controlled foreign company for an accounting period shall be its distributable profits for the accounting period, less any relevant distributions made in respect of the accounting period.

(2) For the purposes of subsections (1) and (3), the distributable profits of a controlled foreign company for an accounting period shall be the amount included in the accounting profits of the company which, notwithstanding any prohibition on the making of a distribution under the laws of the territory in which the controlled foreign company is resident or otherwise, are available for distribution to members of the company and which can reasonably be attributed to relevant Irish activities performed by a controlling company or a company connected with the controlling company for that accounting period.

(3) For the purpose of subsection (1), a relevant distribution made in respect of an accounting period means an amount determined by the formula—

A x (B/C)

where—

A is the amount of the distribution made in respect of the accounting period,

B is the amount of the distributable profits for the accounting period, and

C is the amount of the accounting profit of the controlled foreign company for the accounting period.

(4) The reference in subsection (3) to the amount of the distribution made in respect of the accounting period is a reference to such an amount—

(a) as is distributed to—

(i) a person who is, by virtue of the laws of a relevant Member State, resident for the purposes of tax in a relevant Member State which imposes, without any reduction computed by reference to the amount of such distribution, a tax that generally applies to distributions receivable in that territory, by persons, from sources outside that territory, or

(ii) a person resident in the State,

(b) as is paid or payable—

(i) during the accounting period, or

(ii) within 9 months after the end of the accounting period,

and

(c) where subparagraph (i) of paragraph (a) applies, as has been subject to tax in the relevant Member State referred to in that subparagraph.

(5) The reference in subsection (4)(c) to tax is a reference to tax that has been paid and has not been and does not fall to be repaid, in whole or in part, to the controlled foreign company or any other person on the making of a claim or otherwise.

(6) For the purpose of this section, a distribution made in respect of an accounting period shall be regarded as being made out of the distributable profits of that period to the extent of that profit and, in relation to any excess of the distribution over that profit, out of the most recently accumulated distributable profits.

Controlled foreign company charge

835R. (1) In this section, ‘participation’ means—

(a) a, direct or indirect, possession of, or beneficial right to, or right to acquire, share capital or issued share capital of a company,

(b) a, direct or indirect, right to exercise, or to acquire the rights to exercise the voting power of a company, or

(c) a beneficial right to any profits available for distribution to equity holders of a company.

(2) Subject to subsections (5), (9) and (10), where in an accounting period of a controlled foreign company—

(a) a controlled foreign company group has undistributed income, and

(b) relevant Irish activities in relation to the controlled foreign company group are performed by a chargeable company,

a controlled foreign company charge shall be made on the chargeable company for the accounting period of the chargeable company, as determined in accordance with section 27, in which the accounting period of the controlled foreign company ends.

(3) The controlled foreign company charge made under subsection (2) shall be of an amount equal to the undistributed income of the controlled foreign company group to the extent that such income can reasonably be attributed to relevant Irish activities performed by the chargeable company.

(4) The undistributed income to be attributed to relevant Irish activities for the purpose of subsection (3) shall be determined by reference to the amount that would be payable by persons dealing at arm’s length in relation to those activities, but the amount so attributed shall, in respect of each of the controlled foreign companies in the controlled foreign company group, not exceed an amount determined by the formula—

UI x AP

where—

UI is the undistributed income of the controlled foreign company, and

AP is the aggregate of the controlling company and the chargeable company’s participation in that controlled foreign company, expressed as a percentage of the total participation in that company.

(5) Subsection (2) shall not apply in relation to undistributed income—

(a) attributable to relevant Irish activities performed by a chargeable company under arrangements where—

(i) it is reasonable to consider that—

(I) such arrangements would be entered into by persons dealing at arm’s length, or

(II) the essential purpose of the arrangements is not to secure a tax advantage,

or

(ii) the arrangements are subject to the provisions of section 835C,

or

(b) which has previously been assessed to a controlled foreign company charge under this section.

(6) Subject to subsection (7), corporation tax shall be charged in respect of the controlled foreign company charge at the rate specified in—

(a) section 21(1)(f), in so far as the undistributed income attributable to the relevant Irish activities would be chargeable to tax under Case I of Schedule D, had it been income accruing to the chargeable company, and

(b) section 21A(3), in so far as the undistributed income attributable to the relevant Irish activities would be chargeable to tax under Case III, IV or V of Schedule D, had it been income accruing to the chargeable company.

(7) The amount of corporation tax chargeable in accordance with subsection (6) shall be reduced by the amount of any creditable tax, as determined under section 835S, in respect of the accounting period concerned.

(8) Subject to subsection (7), no relief, deduction or set off of any description shall be allowed against a controlled foreign company charge.

(9) This section shall not apply to undistributed income which is attributable to an asset or risk, whether on an individual basis or taken together as an aggregate, where the increase in the controlled foreign company’s undistributed income as against the undistributed income of the controlled foreign company where it—

(a) did not hold, or had not held, the asset to any extent, or

(b) did not bear, or had not borne, the risk to any extent,

is negligible.

(10) This section shall not apply in relation to an accounting period of a controlled foreign company where, in that accounting period—

(a) the controlled foreign company did not at any time hold assets or bear risks under an arrangement where it would be reasonable to consider that the essential purpose of the arrangement was to secure a tax advantage, or

(b) the controlled foreign company did not have any non-genuine arrangements in place.

(11) For the purpose of subsection (10)(b), a controlled foreign company shall be regarded as having non-genuine arrangements where—

(a) the controlled foreign company would not own the assets or would not have borne the risks which generate all, or part of, its undistributed income, but for relevant Irish activities performed relating to those assets and risks, and

(b) it would be reasonable to consider that the relevant Irish activities were instrumental in generating that income.

Creditable tax

835S. (1) In this section, ‘relevant tax’ means a tax chargeable and payable under the laws of a territory, other than the State, which corresponds to corporation tax.

(2) For the purposes of this Part, the creditable tax for an accounting period shall be the aggregate of—

(a) the amount of foreign tax paid or borne in respect of the chargeable income of the controlled foreign company for that accounting period, and

(b) the amount of relevant tax paid on a foreign company charge in respect of the chargeable income of the controlled foreign company for that accounting period.

(3) In subsection (2), references to an amount paid or borne does not include so much of any such amount as has been or falls to be repaid to the controlled foreign company or any other person on the making of a claim or otherwise.

(4) The amount of the creditable tax to be allowed against corporation tax in respect of any controlled foreign company charge for an accounting period shall not exceed the corporation tax attributable to that charge under section 835R for that period.

Chapter 3

Exemptions

Effective tax rate exemption

835T. (1) Section 835R shall not apply in relation to an accounting period of a controlled foreign company where subsection (2) applies.

(2) This subsection applies where the amount of foreign tax which is paid or borne by a controlled foreign company for an accounting period is not less than the difference between—

(a) the corresponding corporation tax in the State for that accounting period, and

(b) the amount of such foreign tax paid or borne for the accounting period.

(3) The amount of foreign tax which is paid or borne by a controlled foreign company for an accounting period shall be determined in accordance with section 835N.

Low profit margin exemption

835U. (1) In this section, ‘relevant operating costs’ means the operating costs, as construed in accordance with international accounting standards or generally accepted accounting practice, incurred by a controlled foreign company for an accounting period, but excluding—

(a) the costs of goods purchased by the controlled foreign company, other than goods used by the company in the territory in which it is resident for the accounting period, and

(b) any amounts incurred on behalf of, or paid to, an associated company.

(2) Subject to subsection (3), where in an accounting period the accounting profits of a controlled foreign company are less than 10 per cent of its relevant operating costs, section 835R shall not apply.

(3) Subsection (2) shall not apply where—

(a) any arrangements are entered into,

(b) as a consequence of such arrangements subsection (2) would, apart from this subsection, apply, and

(c) it would be reasonable to consider that the main purpose, or one of the main purposes, of the arrangements is to secure that subsection (2) applies.

Low accounting profit exemption

835V. (1) Subject to subsections (2) and (3), where in an accounting period—

(a) the accounting profits of a controlled foreign company are less than €750,000 and the amount of those profits representing non-trading income is less than €75,000, or

(b) the accounting profits are less than €75,000,

section 835R shall not apply.

(2) Where an accounting period is less than 12 months, the amounts referred to in subsection (1) shall be reduced proportionately.

(3) This section shall not apply where—

(a) any arrangements are entered into,

(b) as a consequence of such arrangements subsection (1) would, apart from this subsection, apply, and

(c) it would be reasonable to consider that the main purpose, or one of the main purposes, of the arrangements is to secure that subsection (1) applies.

(4) A reference in subsection (3) to the application of subsection (1) includes a reference to the application of that subsection as modified in accordance with subsection (2).

Exempt period exemption

835W. (1) In this section—

‘exempt period’ shall be construed in accordance with subsection (3);

‘subsequent period condition’ means the condition which is satisfied where the circumstances specified in subsection (4) apply.

(2) Section 835R shall not apply in relation to an accounting period of a controlled foreign company where—

(a) the accounting period ends during an exempt period, and

(b) the subsequent period condition is satisfied by the controlled foreign company.

(3) An exempt period shall begin when a company first becomes a controlling company in relation to the controlled foreign company concerned (in this section referred to as the ‘relevant time’) and shall end 12 months from the relevant time.

(4) The subsequent period condition shall be satisfied by a controlled foreign company where—

(a) the company ceases to be regarded as a controlled foreign company in accordance with Chapter 1, or

(b) the controlled foreign company charge does not apply,

in the first accounting period of the company beginning immediately after the exempt period.

(5) Where the accounting period of a controlled foreign company begins during an exempt period, but does not end during that period, the undistributed income of the controlled foreign company, as determined on a just and reasonable basis, which—

(a) arises during the exempt period, and

(b) would otherwise be subject to the controlled foreign company charge under section 835R,

shall be exempt from such charge.

(6) This section shall not apply in relation to a controlled foreign company where—

(a) immediately before the relevant time the controlled foreign company was not carrying on a business, unless subsection (7) applies to that company, or

(b) the controlling company in respect of the controlled foreign company was subject to this Part (as respects the controlled foreign company) on 1 January 2019.

(7) This subsection shall apply to a controlled foreign company where—

(a) the controlled foreign company is incorporated or formed immediately before the relevant time for the purpose of controlling one or more other companies, and

(b) an exempt period begins in relation to one or more of the companies, referred to in paragraph (a), controlled by the controlled foreign company at that relevant time.

(8) This section shall not apply in relation to a controlled foreign company where—

(a) any arrangements are entered into, and

(b) it would be reasonable to consider that the main purpose, or one of the main purposes, of the arrangements is to secure—

(i) a tax advantage for any person, or

(ii) that subsection (2), would, apart from this subsection, apply.

Relief for certain distributions

835X. (1) Where a distribution made in respect of an accounting period is made by a controlled foreign company out of chargeable income in respect of a previous accounting period, the corporation tax paid on the controlled foreign company charge attributable to that income shall be allowed as a credit against the tax chargeable in respect of the distribution.

(2) Where a distribution made in respect of an accounting period is made by a controlled foreign company in part out of chargeable income in respect of a previous accounting period and in part out of other income or profits, the distribution shall be treated as if it consisted of two distributions made out of chargeable income and out of other income or profits respectively, and subsection (1) shall apply to such part of the distribution as is made out of chargeable income as it applies to a distribution made wholly out of chargeable income.

Relief on certain disposals of shares or securities in a controlled foreign company

835Y. (1) In this section, ‘chargeable gain’ shall be construed in accordance with section 545.

(2) This section shall apply where a controlling company or a company connected with the controlling company (either of which is in this section referred to as a ‘disposing company’), disposes of shares or securities in a controlled foreign company or in a company connected with the controlled foreign company (either of which is in this section referred to as the ‘disposed company’) and a controlled foreign company charge has been made on a disposing company by reference to its interest in the disposed company.

(3) This subsection applies where—

(a) the disposing company is the only chargeable company in relation to the disposed company,

(b) the disposing company is not a chargeable company in relation to the disposed company and the chargeable company does not have any interest in the disposed company, or

(c) the disposing company is a chargeable company in relation to the disposed company and, in relation to that disposed company, there exists another chargeable company which does not have an interest in the disposed company.

(4) For the purpose of computing the chargeable gain accruing to the disposing company on a disposal of shares or securities referred to in subsection (2)—

(a) where subsection (3) applies, an amount shall be allowable as a deduction under section 552(1)(a) from the consideration for the disposal, being an amount determined by the formula—

A x (B/C)

where—

A is the amount of the controlled foreign company charge relating to the controlled foreign company,

B is the number of shares or securities in the disposed company disposed of by the disposing company, and

C is the total number of shares or securities in the disposed company owned by the disposing company immediately before the disposal,

or

(b) where subsection (3) does not apply, an amount shall be allowable as a deduction under section 552(1)(a) from the consideration for the disposal, being an amount determined by the formula—

D x (E/F)

where—

D is the amount of the controlled foreign company charge relating to the controlled foreign company,

E is the number of shares or securities in the controlled foreign company disposed of by the disposing company, and

F is the total number of shares or securities in the controlled foreign company.

(5) Where, before a disposal referred to in subsection (2)—

(a) a distribution is made by the controlled foreign company,

(b) the distribution is made out of the chargeable income which has been subject to the controlled foreign company charge referred to in subsection (2), and

(c) section 835X applies in relation to that distribution,

paragraphs (a) and (b) of subsection (4) shall apply as if the references to A and D, respectively, in the formulae in those paragraphs were a reference to the amount of the controlled foreign company charge relating to the controlled foreign company as reduced by the amount of the controlled foreign company charge which corresponds to the chargeable income represented by the distribution.

(6) Where an amount, representing all or part of a controlled foreign company charge, has been allowed as a deduction under subsection (4), no further deduction shall be given under this section in respect of—

(a) where the amount represents all of a controlled foreign company charge, the controlled foreign company charge, or

(b) where the amount represents part of a controlled foreign company charge, that part of the controlled foreign company charge.

(7) For the purposes of identifying the shares or securities disposed of, in so far as the shares or securities are of the same class, shares or securities acquired at an earlier time shall, for the purposes of this section, be deemed to have been disposed of before shares or securities acquired at a later time.”.

(2) (a) In this subsection—

(i) “controlling company” has the same meaning as it has in Chapter 1 of Part 35B of the Principal Act, as inserted by subsection (1), and

(ii) “accounting period” has the same meaning as it has in section 27 of the Principal Act.

(b) Subsection (1) applies as respects an accounting period of a controlling company commencing on or after 1 January 2019.