Offshore trusts, companies and the CFC rules

We get a few e-mails from people looking to avoid use offshore companies and trusts to reduce UK tax charges. There is nothing wrong with this provided you know the various anti avoidance rules that your up against. Many people believe that they need to avoid CFC rules when looking at using an offshore company or trust. This is not the case. The CFC ('Controlled Foreign Company') rules apply only where a company is controlled by another company. Basically if you have a situation where a company is non UK resident but is owned (wholly or partly) by a UK resident company, and if the overseas company is located in a tax haven, then the profits of the overseas company be apportioned to the UK company. There are however various exceptions that you can consider. In a lot of cases the plan is to have an offshore company (eg an IBC) or trust owned directly by UK residents. In this case the CFC rules won't apply. Unfortunately though you're not home and dry yet. There are other rules that apply to directly owned offshore companies. The main problems in using an offshore company are: - Company residence
- Transfer of assets abroad legislation The offshore company would be classed as UK resident if its management and control was situated in the UK. The transfer of assets abroad legislation can attribute income arising to the overseas company or trust to a UK resident domiciliary. This is a completely different set of rules to the CFC rules above, and there are also a number of completely separate exemptions (eg a motive defence for genuine commercially motivated overseas companies). Members can read more on this by looking at this article on how the offshore tax anti avoidance rules work