ACCA Advanced Taxation (ATX) Practice Exam

True or False: The rule exempting dividend income from an overseas subsidiary applies to a Controlled Foreign Company (CFC).

1. True

2. False

3. Only partially true

4. This rule only applies to UK companies

The correct answer is: False

The statement is false because the rule exempting dividend income from an overseas subsidiary typically does not apply to dividends received from a Controlled Foreign Company (CFC). In many jurisdictions, including the UK, specific rules and regulations were designed to prevent base erosion and profit shifting by requiring that UK companies account for their CFC income under certain conditions. Under the CFC rules, if a UK company has a foreign subsidiary that is classified as a CFC, the profits of that CFC may be subject to UK tax if certain thresholds and criteria are met. This means that dividends received from a CFC do not benefit from the general exemption that typically applies to dividends received from other foreign subsidiaries. Therefore, while international tax systems often provide incentives for repatriating dividend income, the specific circumstances regarding CFCs and their treatment under the law indicate that the exemption does not apply universally, thus making the original statement incorrect.