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Legal testAU · NZ · UKReviewed October 2026
The exemption at the heart of many controlled foreign company regimes: a foreign subsidiary that genuinely trades, and earns only a small fraction of passive or related-party income, has nothing attributed back to its parent. It is why a real operating business is usually left alone wherever it is based.
In Australia it is the active income test in section 432 of the Income Tax Assessment Act 1936, which splits listed from unlisted countries; the United Kingdom and New Zealand reach a similar result through their own trading exemptions.
A definition of an established legal or tax concept for general information. It is not advice on any individual situation.
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