Topic 23 - Overseas for companies

Question 1

What’s the definition of being UK residence

Answer 1

Incorporated in the UK
Central management and control in UK:
- location of board meetings
- where effective day to day management takes place
- resident status of directors.

Question 2

A non UK resident company is chargeable to UK Corporation tax if it carries on trade in the uk through a ….

Answer 2

Permanent establishment (PE)

ie:
Place of mangement
Office
A Branch
Factory
Workshop
Mine
Oil/gas well

Question 3

What are the implication of making an election to exempt profits of overseas PE

Answer 3

• no UK tax on profits of PE
• no UK tax on gains of PE
• no UK loss relief for PE
• no UK CA for P&M used by PE

Irrevocable and applies to ALL overseas PE’s.

Question 4

What are the differences between an overseas branch and overseas subsidiary?

Answer 4

Learn table:

Scope

CA

Trading loss releif

Chargeable Gains

Impact on tax payment

Question 5

What is treaty relief (DTR)?

Answer 5

Where a treaty is entered into between UK and overasea country, the treaty may:

• Exempt certain profits from taxation in one of the countries involved avoiding double taxation; or
• reduce the rate of tax at source on the income/gain; or
• give credit for overseas tax suffered

Question 6

What is unilateral credit relief?

Answer 6

• Applies if no double tax treaty
• Allows credit for overseas taxes
• Tax deducted = withholding tax

Lower of:

• UK tax on overseas profits
• Overseas tax on overseas profits

Question 7

If overseas tax is not fully relieve, tax on trading profits can be:

Answer 7

Carried back 3 years vs tax on profits from the same branch; or

Carried forward vs tax on profits from same branch

Question 8

What is a CFC?

Answer 8

Controlled Foreign Company

Setting up a company in an overseas low tax jurisdiction and keeping it outside of the UK harge to CT.

• Non UK resident; and
• Controlled by a UK resident company/individual
• has artificially diverted from from the UK.

Question 9

What are exemptions from the CFC charge?

Hint:

12m TELL

Answer 9

12 month exempt period on acquisition of CFC

• provided it is a CFC in the next period; and
• one of the other exemptions applies in that period

Tax Exemption

• The overseas tax paid by the CFC is at least 75% of the amount of tax the CFC would pay in UK if resident.

Excluded Territories Exemption

• tax rates are high enough so no charge is needed ( told in Q)

Low Profits Exemption

• CFC’s profits do not exceed £500k; and
• it’s non trading income does not exceed £50k

Low Profit Margin Exemption

• CFC’s a/c profits are no more than 10% of its expenditure

Question 10

For CFC’s No chargeable profits arise if any of the conditions are satisfied. What are the conditions?

Question 11

What and who does the CFC charge apply to?

Answer 11

Chargeable profits (if any) being:

• THe income of the CFC (not chargeable gains)
• that has been artificially divered from the UK
• Calculated using the UK tax rules

Apllies to a UK corporate shareholder if the UK Co. owns at least 25% interest in the CFC.

No CFC charge on individual shareholders.

Question 12

What are the tax implications of the CFC charge

Answer 12

• UK copr tax on proportion of the CFC’s chareable profits to which UK co is entitled
• Added to UK tax liability
• Less a deduction for an equivalent proporiton of any creditable tax:
  
  • DTR if CFC were UK resident
  • UK CT on income of CFC taxble in UK
  • IT suffered y by CFC.