Updated guidance on the new Controlled Foreign Company (CFC) rules which apply to accounting periods beginning on or after 1 January 2013 has recently been published.

It comprises new documents on clearance procedures, the adaptation of the CFC rules for foreign permanent establishment exemption and updated draft guidance on various chapters within the legislation.

By way of reminder, there are a number of notable differences between these rules and the old rules. The new CFC legislation is, for the first time, based on the principle that overseas activities are not taxed in the UK unless there is an artificial reduction of the UK tax base.

Additionally, where a CFC charge applies, it is now proportionate, targeting only profits that have been artificially diverted from the U.K. rather than being “all or nothing” as it was previously. The legislation also includes a number of “gateways” aimed at specifically identifying those circumstances in which there has been an artificial diversion of UK profits.

The legislation is thus intended to catch circumstances where there is a significant mismatch between key business activities whilst also providing certainty to business.