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Understanding the UK's Controlled Foreign Company (CFC) Rules

Writer's picture: Angelo ChirulliAngelo Chirulli
CFC company

The UK's CFC rules aim to prevent profit shifting to low-tax jurisdictions, ensuring that multinational companies with foreign subsidiaries pay fair taxes.


What is a CFC? 

A Controlled Foreign Company (CFC) is a non-UK company controlled by UK residents, either through ownership or influence. The rules are designed to bring back any profits that are artificially diverted from the UK to avoid taxation.


Key Features of the CFC Rules

  1. Control: A company is controlled if UK residents own over 50% of shares or have significant influence.

  2. Apportionment of Profits: Profits shifted from the UK are taxed in the UK.

  3. Significant People Function (SPF): Profits may be attributed to the UK if key decisions are made there.

  4. Exemptions: Certain small subsidiaries, low-margin operations, and tax-friendly jurisdictions may be exempt.


Penalties and Compliance 

Failure to comply can lead to tax assessments, penalties, and audits. Companies must keep detailed records and regularly review foreign operations to ensure compliance.


Strategies for Managing CFC Risk

  1. Review Operations: Regularly assess subsidiaries' structures.

  2. Leverage Exemptions: Check if subsidiaries qualify for exemptions.

  3. Improve Documentation: Keep records to demonstrate compliance.

  4. Consult Experts: Seek professional advice to optimize tax strategies and minimize CFC risk.


LEXeFISCAL Support 

LEXeFISCAL helps businesses navigate CFC rules, offering advice on compliance, exemptions, and structuring to reduce tax liabilities.

 

Contact us today

Tel: +44 (0)208 092 2111

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