Ctm21330 - act: fid: foreign profits: matching fid with distributable foreign profit (dfp): of a subsidiary - hmrc internal manual

CTM21330 - ACT: FID: FOREIGN PROFITS: MATCHING FID WITH DISTRIBUTABLE FOREIGN PROFIT (DFP): OF A SUBSIDIARY ICTA88/S246K, ICTA88/S246M (1), & (2) One choice a parent company had was to

match an FID paid with a DFP of a 51% subsidiary company (see CTM21340). It did this by the subsidiary’s DFP being treated as an ‘eligible profit’ of the parent with which an FID could be

matched. Both companies had to be bodies corporate. ACCOUNTING PERIODS The accounting periods of the parent and subsidiary had to be considered. * Was the accounting period of the subsidiary

the same as or did it fall within the accounting period of the parent? If so a DFP of the subsidiary for its accounting period was an eligible profit for the parent’s accounting period. *

Did only part of the accounting period of the subsidiary coincide with, or with part of, an accounting period of the parent? If the subsidiary had a DFP for its accounting period, then part

- the ‘appropriate fraction’ - of the DFP was an eligible profit for the parent’s accounting period. The ‘appropriate fraction’ was the number of days of the two companies accounting periods

that coincided divided by the number of days in the subsidiary’s accounting period. ORDER OF MATCHING A parent company could elect for all or part of an FID to be matched with all or part

of an eligible profit, but written consent of the subsidiary was required. An entry in the parent’s computations showing the matching with the eligible profit could be accepted as an

election. The consent by the subsidiary had to be signed by the company secretary or an authorised person (TMA70/S108). All or part of one or more FID could be matched with all or part of

one or more eligible profits. FID could be matched with eligible profits of that or the immediately preceding accounting period of the parent. The parent could match with eligible profits of

those two periods as it chose. If there was no eligible profit derived from a subsidiary for that or the preceding accounting period with which an FID could be matched, it could be matched

with eligible profits of any subsequent accounting period. SUMMARY A DFP of a subsidiary was an ‘eligible profit’ of the parent. A parent’s FID could be matched with an eligible profit of: *

the previous accounting period, or * the same accounting period, then * any subsequent accounting period. To prevent double relief there could be no matching between an FID paid and all or

part of an eligible profit more than once. A parent company may have had DFPs of its own and eligible profits deriving from one or more subsidiaries which were all capable of being matched

with an FID paid. The legislation did not specify any order for matching and the company could match as it wishes. CONSEQUENCES OF MATCHING When a parent company elected to match an FID with

an eligible profit for an accounting period: * the matched eligible profit was treated as a DFP of the parent for the parent’s accounting period and as matched, (this enabled the

legislation to refer in places to just matching an FID with a DFP). * the subsidiary’s DFP was reduced by the amount of that eligible profit (this ensured the DFP could not be used by both

companies), * the FSP underlying the subsidiaries DFP was treated as that of the parent to the extent that the DFP was treated as that of the parent, (this enabled the FSP to be used in the

calculation of notional foreign source ACT, see CTM21420). The following rules prevented double matching. * Where a DFP of a subsidiary had been matched with an FID paid by the subsidiary,

the parent could not later match an FID paid by it with the same DFP. * If the subsidiary’s DFP had been matched with an FID paid by the parent, the subsidiary could not later match an FID

paid by it with the same DFP. Previous page Next page Print this page