ACCA Advanced Taxation (ATX) Practice Exam

In which of the following circumstances is there no Controlled Foreign Company (CFC) charge?

1. An exemption applies

2. The company is dormant

3. The profits are less than £10,000

4. The shareholder is a corporate entity

The correct answer is: An exemption applies

The situation where there is no Controlled Foreign Company (CFC) charge typically occurs when an exemption applies. CFC rules are designed to prevent tax avoidance by companies that shift profits to low-tax jurisdictions. However, several exemptions can relieve a company from CFC charges. These exemptions might be based on specific thresholds of income, nature of the income, or the activities of the controlled foreign company. For example, certain exemptions may apply if the foreign company meets particular conditions such as being subject to a certain level of taxation abroad, qualifying as a "low-risk" company, or if the profits are derived from specific non-avoidance activities. This emphasizes the importance of understanding the types of exemptions that can shield a company from additional taxation under CFC rules. Other options present scenarios where a CFC charge might not apply, but they do not carry the same broader application as the exemption. The dormancy of a company, for instance, may seem like a reason for no charge, but it could depend on other factors such as the specific laws of the jurisdiction. Additionally, while profits under £10,000 could potentially reduce the likelihood or amount of charge, it is not a definitive rule that guarantees no charge will apply, as CFC provisions can sometimes