INTM226350 - Controlled Foreign Companies: Entity Exemptions: Chapter 14 - The Tax Exemption: Example 2
This example illustrates the comparison that needs to be made between the local tax amount and the corresponding UK tax. This example shows where a CFC meets the tax exemption.
The facts are as in Example 1 (see INTM226300) except that in addition the CFC pays withholding tax of £5,000 in respect of royalties received from territory Z for which territory X does not give tax relief. The computation of its corresponding UK tax is now as follows assuming the CT rate is:
- | £ | - |
---|---|---|
£100,000 @ 20% | 20,000 | - |
Less tax paid in territory Y | 11,000 | - |
Less withholding tax paid | 5,000 | - |
- | 4,000 | (A) |
Tax paid in territory X | 3,000 | (B) |
As the local tax amount of £3,000 is 75% of the corresponding UK tax then the tax exemption applies and there is no CFC charge.