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A CFC鈥檚 accounting profits for 2014 show

-	Amount	Amount
Sales	-	3,245,000
Cost of goods sold	(2,545,000)	-
Distribution	(55,000)	-
Administration	(400,000)	-
Operating Expenditure	-	(3,000,000) / 245,000
Interest income	-	5,000
Interest expense	-	(150,000)
Accounting profit	-	100,000

The cost of goods sold includes 400,000 for goods never delivered into the CFC鈥檚 territory of residence. Administration includes a 200,000 charge for services provided by staff of the CFCs parent company.

Applying the rules of the low profit margin exemption the analysis is as follows:

-	-	Amount	Amount
-	Operating expenditure	3,000,000	-
less	Goods not used in territory	(400,000)	-
less	Expense representing income of related person (parent company)	(200,000)	-
-	Relevant operating expenditure	-	2,400,000

10 per cent of relevant operating expenditure is therefore 240,000.

-	-	Amount
-	Accounting profit	100,000
Add	Interest expense	150,000
-	Accounting profit before interest deductions	250,000

The accounting profit before interest is 250,000, which is more than 240,000, so the low profit margin exemption does not apply.