INTM226350 | Controlled Foreign Companies: Entity Exemptions: Chapter 14 - The Tax Exemption: Example 2
From HM Revenue & Customs · International Manual
This example illustrates the comparison that needs to be made between the local tax amount and the corresponding UK tax. This example shows where a CFC meets the tax exemption.
The facts are as in Example 1 (see INTM226300) except that in addition the CFC pays withholding tax of £5,000 in respect of royalties received from territory Z for which territory X does not give tax relief. The computation of its corresponding UK tax is now as follows assuming the CT rate is:
| - | £ | - |
|---|---|---|
| £100,000 @ 20% | 20,000 | - |
| Less tax paid in territory Y | 11,000 | - |
| Less withholding tax paid | 5,000 | - |
| - | 4,000 | (A) |
| Tax paid in territory X | 3,000 | (B) |
As the local tax amount of £3,000 is 75% of the corresponding UK tax then the tax exemption applies and there is no CFC charge.