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The UK controlled foreign companies (CFC) regime has been substantially revised for accounting periods beginning on or after 1 April 2013.
The new CFC regime is a mainly entity-based system which focuses on overseas profits that have been artificially diverted from the UK. It applies to companies controlled from the UK but resident in an overseas territory and is based around a “gateway” test which determines whether or not there are chargeable profits to which a CFC charge may apply. Detailed calculations of chargeable profits that pass through the gateway are only required where it is likely that a CFC charge will arise, as there are a number of entity level exemptions and safe harbours available to exclude profits from the Gateway in particular circumstances. The regime allows for the possibility of low tax financing as a finance profits exemption may apply to exempt 75 per cent of the profits of a foreign finance company to the extent that they arise from qualifying loans to foreign group companies. Thus, such profits will normally only be taxed at a UK effective tax rate of 5.25 per cent (in 2014 falling to 5.0 per cent in 2015). Full exemption is available in limited circumstances.(Updated, PwC, March 20 2013)