INTM254980 | Controlled Foreign Companies: exemptions - Exempt Activities Test ('EAT'): Qualifying exempt activity income

ICTA88/SCH25/PARA12A(2)

Income of a company which represents qualifying exempt activity income is income which is directly or indirectly derived from companies which:

• it controls including ‘maximum permitted shareholding companies’ and ‘40/40’ controlled foreign companies (see INTM254940) and which

• throughout that period are not superior holding companies but are engaged in exempt activities or are exempt trading companies, and which

• are not holding companies other than local holding companies.

Example

A Ltd owns B Ltd which itself owns six trading companies carrying on exempt activities and one local holding company. All are non-resident companies. The seven companies owned by B Ltd all pay a dividend to B Ltd which in turn pays that dividend to A Ltd. That dividend in the hands of A Ltd and B Ltd is qualifying exempt activity income because it is derived either directly (in the case of B Ltd) and indirectly (in the case of A Ltd) from companies satisfying the above requirements.