CFC Rules or Controlled Foreign Corporation Rules have been implemented by several Governments around the world to curb tax avoidance.
Controlled Foreign Company rules in the UK do not apply to individual shareholders, but otherwise bear many similarities to U.S. rules. UK resident companies can be subject to a charge for tax on undistributed income of low tax controlled foreign companies of which they are shareholders. Control for this purpose is not a mechanical test, rather one of factual control. However, control is considered to exist if the shareholder (or shareholder group of companies) own 40% or more of voting interests.
A controlled foreign company is a company that is tax resident outside the UK and it is subject to a charge to tax less than it would have been were it a UK resident company. This is determined by comparing the actual charge to tax to a corresponding UK tax. In computing the corresponding tax, lower UK rates of tax on small companies are considered. Further, there are taken into account certain adjustments to income and fiscal years.
Certain exemptions apply. Generally, a foreign company will not be considered a controlled foreign company if it meets any of the following tests:
- It is tax resident in a "white list" of countries not considered to be tax havens, as maintained by HMRC,
- The foreign company maintains a policy whereby it distributed 90% or more of its available earnings each year (no longer applicable since 1 July 2009),
- The company qualifies for a De Minimis level of accounting profits being less than £200,000. This level of income has been in place since 1 January 2011. Previously the level was set at £50,000 of profits that would be chargeable to UK corporation tax if the company were UK resident (not necessarily the same as accounting profits).
- The foreign company meets an active business test,
- The foreign company is publicly quoted on a recognized securities exchange, or
- The group meets a no-tax-reduction motive test.
Please Contact Us to find out further details about how you or your company can meet the criteria for establishing an overseas business.
The Motive Test
was introduced by UK's HMRC because it proved impractical to devise comprehensive objective tests that ensured that all United Kingdom controlled overseas subsidiaries with profits derived from genuine overseas activities were excluded from the controlled foreign companies' charge. However the motive test was included in UK Law which shows that this legislation is targeted at countering tax avoidance. The EU claims that UK's anti-avoidance rules relating to the transfer of assets are excessive in their application and are contrary to EU law relating to the free movement of capital. Until now HMRC and the Treasury have resisted any relaxation of the rules but amendments to CFC rules were made in the Finance Act 2011 and further changes will be implemented under the Finance Bill 2012/13.
Capital Gains Tax
The changes relating to the capital gains tax rules in section 13 TCGA 1992 will introduce a new test, the business establishment test, to exempt foreign company gains. This will effectively extend the current exemption for assets used in a trade by an offshore company to look at the whole activity. The business establishment test will look at the activities being conducted by the offshore company and determine if a genuine economic activity is being conducted.
To determine this, such matters as staffing, physical presence in the offshore jurisdiction and third party transactional activity will be examined. Any pure investment activity is unlikely to pass this test unless the offshore company can demonstrate that it is actively managing the portfolio and not using agents. AMP & Partners Ltd can assist clients to appoint local directors/business partners and to source suitable office premises. Contact Us for a free 'no obligation'. consultation.
The proposed test will therefore protect companies that carry out genuine economic activities but will not assist those offshore companies that are merely being used to ring-fence assets.
The consultation document has also addressed changes in the anti-avoidance rules relating to the transfer of assets overseas. Currently the anti-avoidance rules apply where the following conditions are met:
- There is a transfer of assets overseas to a person not resident in the UK,
- and Income becomes payable to the transferee,
- The transferor has the power to enjoy the income either now or in the future.
If all three conditions are met then the income arising is treated as the transferor’s income and is taxed accordingly. As these broad conditions most Uk Taxpayers fall under this legislation. One defence against this is the Motive Test where it can be proven to HMRC that the transfer of the assets was for purely commercial reasons and not for tax avoidance purposes, alone.
In addition to the existing exemption a new exemption is to be introduced. The new exemption will look at the economic circumstances surrounding the transfer in an objective manner and try to identify transactions carried out on an arms-length basis for genuinely commercial purposes.
To meet this test there will be two conditions to satisfy:
- The first Condition is that the transaction is truly arms-length in character. This can mean connected parties, but the terms of the transaction should be the same as if carried out between independent third parties.
- The second Condition requires that the transaction is undertaken for significant economic activities that are carried on outside the UK.
This broadly follows the section 13 exemption and will require the overseas activity to be for the provision of goods or services on a commercial basis and with a view to making a profit through employees, agents and contractors that are required to generate profits on that scale The Consultation Document states that the making of investments will not normally be considered as being an “economically significant activity” and therefore is unlikely to satisfy this test.
One final change to the current rules relates to foreign companies resident in the UK for corporation tax purposes. Under the existing rules such companies are deemed to be persons overseas for the purposes of the transfer of assets abroad legislation and therefore lead to anomalies arising. It is proposed that such companies will be outside the legislation and therefore transfers of assets to such companies will no longer be caught within this particular anti-avoidance provision. This is to apply retrospectively from 6 April 2012.
Please Contact Us to find out further details about how you or your company can meet the criteria for establishing an overseas business.
Our Professional Code of PracticeWe all have a duty of care to act in the best interests of our clients. With globalisation affecting small to medium businesses, as professional advisers, should we not be exploring business opportunities in other countries on behalf of our clients. International tax planning, foreign investment, mergers and outsourcing are already a necessity for many small trading companies. AMP & Partners Limited can assist with your global needs which include; releasing equity, re-financing, property consultancy, raising capital, and tax-planning.
As an independent group we are able to provide a very personalized service and endeavour to satisfy the many differing needs of our clients and business associates. We are always seeking to develop new relationships with financial intermediaries, accountants, lawyers and real estate agents to further mutual business aims.
For tax planning purposes AMP & Partners Limited is based in Gibraltar. However, AMP & Partners' services are not limited to Gibraltar as we provide corporate services through special arrangements with licensed providers in all jurisdictions, where this is a requirement, which includes Gibraltar. We currently recommend Nevis as an alternative jurisdiction which is suitable for the uses of entrepreneurs, contractors, consultants, import/exporters and web based businesses. We have made special arrangements with a licensed provider in Nevis where companies can be incorporated quickly without clients needing to suffer undue delay due to onerous compliance requirements. Please note that we only engage genuine businesses and that we comply with EU Due diligence regulations. AMP & Partners is registered with the Data Protection Agency in Gibraltar.
Our company has extensive past and present experience in the ‘offshore’ financial and property fields with personnel trained in accountancy, marketing and retailing to provide you with a range of skills needed to help your business to expand. Whatever you or your client's goals may be, we can tailor make bespoke solutions to suit your specific needs. Our intention is to provide long term solutions that are designed to help businesses grow and to protect wealth offshore.
AMP & Partners Limited
Office: 13/1 Line Wall Road, Gibraltar,
Registered in Gibraltar, No. 89935
Registered Office: 13/1 Line Wall Road, Gibraltar
Tel Gibraltar:+350 200 42563, UK Representative +44 (0) 7 989 100 500
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- Contactors Overseas
- Property Holding Companies
- Gibraltar as an Offshore Centre
- Raising finance
AMP & Patners Limited are registered with the Data Protection Agency in Gibraltar in accordance with ICAEW (Institute of Chartered Accountants in England & Wales) regulations. Your data will not be forwarded to any third parties without your permission.
Here are some energy saving tips that we could all use and help to reduce energy use, thereby lessening carbon emissions:
- Consider buying a laptop for your next computer upgrade; they use much less energy than desktop computers.
- Computers and monitors save energy only when the power management features are activated, so make sure power management is activated on your computer.
- In the average home or office, 25% of the electricity used to power home electronics is consumed while the products are turned off. This can be avoided by unplugging the appliance or using a power strip and using the switch on the power strip to cut all power to the appliance.
- Studies have shown that using rechargeable batteries for products like cordless phones and PDAs is more cost effective than throwaway batteries. If you must use throwaways, check with your trash removal company about safe disposal options.
More about computers-
- Here is a common misconception that screen savers reduce energy use by monitors; they do not. Automatic switching to sleep mode or manually turning monitors off is always the better energy-saving strategy.
- To maximize savings with a laptop, put the AC adapter on a power strip that can be turned off (or will turn off automatically); the transformer in the AC adapter draws power continuously, even when the laptop is not plugged into the adapter.
- Turn off your computer and monitor when not in use.
- Unplug battery chargers when the batteries are fully charged or the chargers are not in use.
- Turn off your personal computer when you're away from your PC for 20 minutes or more, and both the CPU and the monitor if you will be away for two hours or more.
- Consider using high-intensity discharge (also called HID) or low-pressure sodium lights.
- Exterior lighting is one of the best places to use CFLs because of their long life. If you live in a cold climate, be sure to buy a lamp with a cold weather ballast since standard CFLs may not work well below 40°F.
- Turn off decorative outdoor natural gas lamps; just eight such lamps burning year-round use as much natural gas as it takes to heat an average-size home during an entire winter.
- Use outdoor lights with a photocell unit or a motion sensor so they will turn on only at night or when someone is present. A combined photocell and motion sensor will increase your energy savings even more.
- Consider using 4-watt mini-fluorescent or electro-luminescent night lights. Both lights are much more efficient than their incandescent counterparts. The luminescent lights are cool to the touch.
- If you have torchiere fixtures with halogen lamps, consider replacing them with compact fluorescent torchieres. Compact fluorescent torchieres use 60% to 80% less energy, can produce more light (lumens), and do not get as hot as the halogen torchieres. Halogen torchieres are a fire risk because of the high temperature of the halogen bulb.
- Take advantage of daylight by using light-colored, loose-weave curtains on your windows to allow daylight to penetrate the room while preserving privacy. Also, decorate with lighter colors that reflect daylight.
- Recessed downlights (also called recessed cans) are now available that are rated for contact with insulation (IC rated), are designed specifically for pin-based CFLs, and can be used in retrofits or new construction.
- Use CFLs in all the portable table and floor lamps in your home. Consider carefully the size and fit of these systems when you select them. Some home fixtures may not accommodate some of the larger CFLs.
- Consider using 4-watt minifluorescent or electro-luminescent night lights. Both lights are much more efficient than their incandescent counterparts. The luminescent lights are cool to the touch.
- Use 4-foot fluorescent fixtures with reflective backing and electronic ballasts for your workroom, garage, and laundry areas.
- Consider three-way lamps; they make it easier to keep lighting levels low when brighter light is not necessary.
- Use task lighting; instead of brightly lighting an entire room, focus the light where you need it. For example, use fluorescent under-cabinet lighting for kitchen sinks and countertops under cabinets.
- Turn off the lights in any room you're not using, or consider installing timers, photo cells, or occupancy sensors to reduce the amount of time your lights are on.
- Install task lighting – such as under-counter kitchen lights or bathroom mirror lights – to reduce the need for ambient lighting of large spaces.
- Use dimmers, motion sensors, or occupancy sensors to automatically turn on or off lighting as needed and prevent energy waste.
- Install fluorescent light fixtures for all ceiling- and wall-mounted fixtures that will be on for more than 2 hours each day.
- Use ENERGY STAR® labeled lighting fixtures.
- Consider light wall colors to minimize the need for artificial lighting.
- Use compact fluorescent light bulbs (CFLs) in place of comparable incandescent bulbs to save about 50 percent on your lighting costs. CFLs use only one-fourth the energy and last up to 10 times longer.
- Turn your lights off when you leave a room. Standard, incandescent light bulbs should be turned off whenever they are not needed. Fluorescent lights should be turned off whenever you'll be away for 15 minutes or more.
- During winter, open curtains on your south-facing windows during the day to allow sunlight to naturally heat your home, and close them at night to reduce the chill you may feel from cold windows
- Installing a skylight can provide your home with daylighting and warmth. When properly selected and installed, an energy-efficient skylight can help minimize your heating, cooling, and lighting costs.
If you are looking to reposition your business overseas, we at AMP & Partners Limited can help to point you in the right direction where our services include the setting up of overseas corporate structures, bank account opening and business plan preparation. A jurisdiction such as Gibraltar provides high quality legal, accounting and banking services. Gibraltar Companies are often used by business persons located in various countries around the world to safely hold capital and carry out transactions utilizing local professional services.