835 Low profit margin exemption

Summary

This section excludes from the scope of the CFC rules an entity whose accounting profits are less than 10% of its operating costs for the relevant period. The operating costs may not include the cost of goods sold outside the country where the entity is resident for tax purposes and payments to associated enterprises. The section contains an anti-avoidance measure and is designed to ensure that the exemption cannot apply where the CFC enters into arrangements, the main purpose of which is to ensure that the exemption would apply.

Details

(1) The term ‘relevant operating costs’’ means the operating costs as construed in accordance with international accounting standards or generally accepted accounting practice and they are the operating costs incurred by a CFC for an accounting period, excluding:

• the costs of goods purchased by the CFC other than the goods sold by the CFC in its territory of residence, and
• payments to associated companies.

(2) The CFC charge in accordance with section 835R shall not apply where the accounting profits of the CFC are less than 10% of its relevant operating costs.

(3) This anti-avoidance measure provides that the exemption shall not apply where arrangements are entered into, the main purpose of which is to ensure that the low profit margin exemption applies.

Relevant Date: Finance Act 2021