Among the types of companies at which the CFC legislation is aimed are ‘captive insurance companies’. Use of captive insurance companies can save tax because premiums paid by UK companies are deductible against profits, but are likely to be subject to little or no tax under the law of the territory in which the captive is resident. Insurance business falls within the definition of ‘wholesale, distributive and financial business’ in ICTA 1988, Sch. 25, para. 11(1)), and, accordingly, a CFC engaged in insurance business will fail to meet the ‘exempt activities’ test if more than half of its business comes from connected persons, e.g. its UK parent.

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