How is the controlled foreign company (CFC) charge treated in the UK?

The treatment of the controlled foreign company (CFC) charge in the UK is to add it to the corporation tax liability. Under UK tax law, a CFC charge arises when a UK company has control over a foreign company that has low levels of taxable income or profits. Such profits may be subject to UK tax even if they are not distributed.

When calculating a UK company's corporation tax liability, any CFC charges are included in the profits that are subject to tax. This ensures that the UK tax system addresses potential tax avoidance by taxing profits that are generated in lower-tax jurisdictions, preventing those profits from escaping taxation merely by being retained in the foreign company.

This treatment is significant as it aligns with the overall framework of the UK's corporate tax regime, where corporations are taxed on their worldwide income, with certain considerations for mitigating double taxation and promoting transparency in international taxation. As a result, adding the CFC charge to the corporation tax liability reflects the policy intention to discourage profit shifting and ensure that UK companies pay a fair amount of tax on their global earnings.