controlled foreign company
(CFC)
A company that is:
• Resident outside the UK;
• Controlled by persons resident in the UK; and
• Subject to a lower level of taxation in the territory in which it is resident.
Set out in Chapter IV of Part XVII of the Income and Corporation Taxes Act 1988 (ICTA), the CFC rules prevent UK companies from avoiding tax in the UK by diverting income to subsidiaries located in tax havens or countries with preferential tax regimes. HM Revenue & Customs can assess a UK resident company on profits of a CFC. There are a number of exemptions. No assessment can be made if, for example, an acceptable distribution policy is pursued under which a sufficient percentage of the foreign profits is being received (and taxed) in the UK or the CFC undertakes certain exempt activities (sections 747-756, ICTA).

Practical Law Dictionary. Glossary of UK, US and international legal terms. . 2010.

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