The Treasury has published a series of draft regulations on the new Controlled Foreign Companies (CFCs) rules in relation to CFC banking capitalisation, life insurance companies, and worldwide debt cap.

CFC banking capitalisation

The regulations provide a capitalisation safe harbour in respect of banking CFCs within banking groups. If a banking CFC meets the conditions set out in the regulations, the effect will be that no CFC charge will arise under chapter six of the CFC regime, which deals with the capitalisation of CFCs with trading finance income.

They are intended to reduce the compliance burden in relation to banking CFCs, by providing a mechanical test of the level of capitalisation in those CFCs.

Comments on the draft regulations can be submitted until 19 November 2012.

Life insurance companies - CFC interaction

The regulations are intended to ensure that the new CFC regime interacts appropriately with the existing rules for the taxation of offshore funds held by life insurance companies, particularly section 212 TCGA 1992. They are designed to prevent double taxation and reduce compliance burdens in respect of life insurance companies' offshore funds.

Comments on the draft regulations can be submitted until 19 November 2012.

Worldwide debt cap - CFC interaction

The regulations make some amendments to the debt cap and CFC rules to ensure that the two regimes interact correctly. They ensure that the debt cap mechanisms for reducing or eliminating a corporation tax charge can also be applied, in appropriate circumstances, to a CFC charge. They do this by making sure that a CFC charge can be included as part of the allocated amount within the debt cap rules.

Comments on the draft regulations can be submitted until 21 November 2012.

The draft regulations and further information are available from the Treasury.