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Oversees Aspects of Corporation Tax (Controlled foreign Companies…
Oversees Aspects of Corporation Tax
Oversees Company
Trade
within
UK
Permanent Establishment / Branch
Profits
Liable : UK Corporation Tax/ Overseas tax
Double Taxation Relief (DTR)
Treaty Relief
One country
exempting
the source of income/gain. OR
UK giving a
tax credit
to overseas taxes suffered
One country
reduce rate
of tax on source of income/gain, OR
Unilateral Relief
Applies if
no
double tax treaty
Credit relief for overseas taxes
Excess overseas tax
On branch profits
carried forward
indefinitely against UK CT on profits form same branch
carried back
for 3 years against UK CT on profit from same branch
On rent / interest
No relief
Trading Loss
Can be group relieved in UK
Relieve in overseas country, OR
Can
conclude contract
in PE
Trade
with
UK
Exporting/Storing/Marketing in UK
Profits
No
corporation tax in UK
Taxable in Oversees country
UK company
Trade
within
Oversees Country
Permanent establishment / Branch
UK Capital Allowances
Available on overseas assets
Not available if election for exemption is made
Chargeable Gains
CGT computed using UK rules
Rollover relief is available on reinvestment
Capital losses can be utilized in UK
No Gain/loss is utilized if election for exemption is made
Trading loss relief
Can relieve against UK profits, OR
First relieve loss in overseas country, then
UK losses
can be relieved against overseas PE profits
No relief in UK if election for exemption is made
against income in overseas country, with lowest tax rates
Earnings Basis
other oversees income: Add with UK other income
Liable : UK Corporation Tax/ Overseas tax
Scope
If controlled from UK
Trading profit is added to UK trading profit
DTR is available
Can elect for profit to be exempt
Corporation tax threshold for payment by installment is
NOT
reduced
All overseas income must be included in CT computation
Gross
Overseas Resident Company
/Overseas Subsidiary
Related Company
If Control is ≤ 50%
Dividends are
ignored
(Franked Investment Income)
UK trading loss
cannot be surrendered to overseas Subsidiary
No
capital allowances
No
DTR
Interest income
from loan to overseas subsidiary is taxable
No relief against UK profits
Unrelated Company
If Control is > 50%
Dividends are
exempt
Included in number of associates
Augmented profit limit is divided
loss surrendered from Overseas company to UK company if:
the UK ompany has atleast 75% intersest in the overseas company's shares
no other method of relieving the loss exists
the company is reiedent in the EEA
No
capital allowances available in UK
No
DTR
Interest income
from loan to overseas subsidiary is taxable
Chargeable gains not assessed in UK
Corporation tax threshold for payment by installment is reduced
No relief against UK profits
Exemption Election
Election once made, applies to all overseas PEs
Irrevocable election to exempt profits of oversees PE
No UK Tax
No loss relief in UK
No Capital allowances in UK
No CGT in UK
Tax planning
Oversees tax > UK tax
DTR is equall to UK Tax
May not be beneficial to make election
DTR may result in a little corporation tax payable, AND/OR
if losses are possible in Overseas PE
Trade
with
Oversees Country
Exporting/Storing/Marketing in oversees country
Profits
Liable :UK Corporation
Not
liable: oversees tax
Controlled foreign Companies
Exemptions
to CFC charge
Exempt period
First 12 months
continues
to be CF in following accounting period, AND
it is
not
subject to
charge
in that accounting period
Does
not
apply to
newly
incorporated companies
Excluded territories
IF CFC is resident in excluded territory ,
No
CFC charge arise
Low profits
Total taxable profits
Non- trading profit not more than 50,000
500,000 or less
Low profit margin
CFC"s accounting profits no more than 10% of relevant operating expenditure
Tax exemption
Tax paid in overseas country is
at least 75%
of UK CT due if CFC were a UK resident company
Scope
Anti avoidance legislation
non UK resident company
controlled by UK resident company
artificially diverted profits
Treatment
CFC charge
UK company owns at least a 25% interest in CFC
UK company share % × CFC profit × UK CT rate
Less: DTR if CFC were resident
Less: UK tax on income of CFC, if any
Less: Income tax suffered by the CFC on income