Controlled foreign companies (‘CFC’)

UK anti-avoidance legislation applies to a company that is set up overseas to keep it outside of the UK charge to corporation tax. Existing legislation applies by allocating a proportion of the profits of the CFC to the UK where they are subject to tax. A number of exceptions are available where it can be demonstrated that the CFC was not established outside of the UK for tax avoidance purposes or that profits of the CFC will be repatriated to the UK where they will be subject to tax.

Under the draft legislation, there are proposals to eliminate some of these exceptions. The Government has also announced an ongoing review of the remaining CFC rules, with draft legislation not expected until 2010 at earliest.

The UK Government is seeking feedback on its proposals by Tuesday, March 3, 2009. The U.S. and UK member firms of KPMG International are working with their clients in the United States, the United Kingdom and elsewhere to assess the potential impact on them. Following ongoing client consultation, the UK member firm submitted its initial comments to the United Kingdom Government for consideration, with additional representations likely to be made shortly.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.

By Alan Turner, KPMG LLP.

This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG LLP. KPMG LLP is a Club Level Member of the BABC”.

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