Taxation (International and Other Provisions) Act 2010 section 371DF

Exclusion: trading profits (the basic rule)

Section 371DF sets out the basic rule for excluding a controlled foreign company's trading profits from the Chapter 4 CFC charge gateway, provided certain conditions are all met.

• All trading profits of a CFC can be excluded from the Chapter 4 gateway profits if five conditions are satisfied: business premises, income, management expenditure, intellectual property, and export of goods
• Most conditions apply on an entity-wide basis, meaning the CFC as a whole either passes or fails, offering a simpler alternative to the detailed significant people functions analysis in Chapter 4
• Even where not all five conditions are met, trading profits linked to specific assets or risks may still be excluded under the management expenditure condition
• The exclusion is subject to an anti-avoidance rule that can override it if arrangements are in place to exploit the relief