Taxes Consolidation Act 1997 section 835U

Low profit margin exemption

Section 835U provides a low profit margin exemption from the controlled foreign company (CFC) charge where a CFC's accounting profits are less than 10 per cent of its relevant operating costs.

• A CFC is exempt from the CFC charge if its accounting profits for an accounting period are less than 10 per cent of its relevant operating costs for that period.
• Relevant operating costs are operating costs computed under international accounting standards or generally accepted accounting practice, excluding the cost of goods purchased and sold outside the CFC's country of residence and amounts incurred on behalf of or paid to associated companies.
• In effect, for goods costs to count as relevant operating costs, the goods must be purchased and sold within the CFC's own jurisdiction and must not involve transactions with associated companies.
• An anti-avoidance rule denies the exemption where arrangements have been entered into and one of the main purposes of those arrangements is to secure the benefit of the exemption.