CHAPTER 2

Controlled foreign company charge

Overview

Chapter 2 provides for the CFC charge. The charge arises on the portion of the CFC’s undistributed income that is attributable to the Irish SPFs, where those SPFs are instrumental in generating the income and the arrangements involving the SPFs are non-genuine and have been put in place for the essential purpose of avoiding tax.

835Q Undistributed Income

Summary

This section sets out the rules for determining the undistributed income of the CFC.

Details

(1) In determining the CFC’’s amount of undistributed income, the available distributable profits for the accounting period are reduced by any relevant distributions made in respect of the accounting period.

(2) In determining the amount of distributable profits, any local laws in the CFC’’s territory of jurisdiction that prohibit the making of a distribution or any other such restriction should be ignored. The amount of distributable profits available is limited to the profits attributable to SPF activities, [‘‘relevant Irish activities’’] undertaken by the controlling company or a connected company. This subsection ensures that a CFC charge can only arise on income with an Irish nexus.

(3) A relevant distribution is defined with a formula: A x (B/C).

• A is equal to the distribution made in respect of the accounting period.
• B is equal to the amount of distributable profits for the accounting period.
• C is equal to the amount of the CFC’’s accounting profits for the accounting period.

The distribution amount is apportioned by reference to the distributable profits available divided by the CFC’’s accounting profit.

(4) Undistributed income cannot be reduced by income that has been distributed but has not suffered tax in the EU. For an amount to be considered distributed, it must be distributed to a person resident in a Member State that imposes tax on distributions received from outside that Member State or to a person resident in the State. The distribution must be paid or payable during the accounting period or within 9 months after the end of the accounting period. The distribution must have been subject to tax in a Member State.

(5) The reference to ‘‘tax’’ in paragraph (c) of subsection (4) means a tax that must have been paid in the EU and must not be repayable.

(6) Subsection (6) ensures that the distribution is considered to be made from distributable profits of that accounting period with any excess coming from the most recently accumulated distributable profits.

Relevant Date: Finance Act 2021