Winter: with CFC change comes opportunity and complexity

According to Charles Winter, chief operating officer and head of risk finance for Aon Risk Solutions, UK controlled foreign companies (CFC) regulatory changes must be examined on a case-by-case basis to determine what the material benefits to captive owners will be.

Stemming from the 2012 Finance Act in the UK, the changes have just become effective. Winter explained, “As we’re now some way through the first accounting period there is more guidance available, and there will be more conversations between captive owners and the HM Revenue and Customs (HMRC). It’s still new and mostly untested, and there is relatively little in the way of actual examples to base conclusions.

The new CFC regulations stipulate that, while previously all profits were considered “in scope for tax unless they’re out of scope”, profits are now “out of scope until they’re in scope”. Earnings from non-UK contracts can now avoid assessment, as could companies within the EEA or with smaller profit levels that fall below £500,000.

“There are plenty of ways to capture profits, so it’s not as through it’s a free-for-all,” Winter said. “But there are certainly a few areas in which these changes could benefit a number of companies, particularly where they have international exposures.”

With those opportunities, Winter told Captive International, come complexities. “Whilst the new rules do appear to offer benefits, they also bring with them a few layers of administration in order to work out whether that benefit is actually going to exist and what it’s going to be. The calculation of tax will probably get more complicated.”

Winter concluded: “On paper it all looks very positive for captive owners, but it’s necessary to look at individual circumstances and see how material the benefits are going to be. We wouldn't recommend that organisations structure their activities solely around tax. Tax can change. Organisations need to look after their core business.”