Taxes Consolidation Act 1997 section 835W

Exempt period exemption

Section 835W provides a 12-month grace period during which a controlling company can reorganise the affairs of a newly acquired controlled foreign company (CFC) so that a CFC charge does not arise.

• Where a CFC's accounting period ends during the exempt period and the subsequent period condition is met, the CFC charge does not apply; the exempt period runs for 12 months from the date the controlling company first becomes subject to the CFC rules in relation to that CFC.
• The subsequent period condition is satisfied where the company either ceases to be a CFC or the CFC charge does not apply in the first accounting period beginning immediately after the exempt period; if the condition is not met, the deferred charge becomes payable alongside any charge for the subsequent period.
• The exemption is not available where the CFC was not carrying on a business immediately before the exempt period began, or the controlling company was already subject to the CFC rules in respect of that CFC on 1 January 2019; however, a newly formed acquisition vehicle can qualify if it was set up to control companies that themselves qualify for the exemption.
• An anti-avoidance rule denies the exemption where arrangements have been entered into and it is reasonable to consider that a main purpose of those arrangements is to secure a tax advantage or to access the exempt period exemption.