F1PART 9AControlled foreign companies
Chapter 13The low profit margin exemption
371MAIntroduction to Chapter
This Chapter sets out an exemption called “the low profit margin exemption” for the purposes of section 371BA(2)(b).
371MBThe basic rule
1
The low profit margin exemption applies for a CFC's accounting period if the CFC's accounting profits for the period are no more than 10% of the CFC's relevant operating expenditure.
2
In this section references to the CFC's accounting profits are to those profits as determined before any deduction for interest.
3
The CFC's “relevant operating expenditure” is its operating expenditure brought into account in determining its accounting profits for the accounting period, excluding—
a
the cost of goods purchased by the CFC, other than goods used by the CFC in the territory in which it is resident for the accounting period, and
b
any expenditure which gives rise, directly or indirectly, to income of a person related to the CFC.
371MCAnti-avoidance
The low profit margin exemption does not apply for a CFC's accounting period (“the relevant accounting period”) if—
a
an arrangement is entered into at any time,
b
in consequence of the arrangement, the low profit margin exemption would (apart from this section) apply for the relevant accounting period, and
c
the main purpose, or one of the main purposes, of the arrangement is to secure that the low profit margin exemption applies—
i
for the relevant accounting period, or
ii
for that period and one or more other accounting periods of the CFC.
Pt. 9A inserted (17.7.2012) by Finance Act 2012 (c. 14), Sch. 20 para. 1 (with ss. 56-58)