Law

Taxation (International and Other Provisions) Act 2010

United Kingdom · statute

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In force since 2026-03-18, as the publisher states.

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Contains public sector information licensed under the Open Government Licence v3.0. Source: legislation.gov.uk, The National Archives.

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Contents: 675 provisions
  1. Title and introductory text
  2. 1 Overview of Act
  3. 2 Giving effect to arrangements made in relation to other territories
  4. 3 Arrangements may include retrospective or supplementary provision
  5. 4 Meaning of “double taxation” in sections 2 and 3
  6. 5 Orders under section 2: contents and procedure
  7. 6 The effect given by section 2 to double taxation arrangements
  8. 7 General regulations
  9. 8 Interpretation: “unilateral relief arrangements” means rules 1 to 9, etc
  10. 9 Rule 1: the unilateral entitlement to credit for non-UK tax
  11. 10 Rule 2: accrued income profits
  12. 11 Rule 3: interaction between double taxation arrangements and rules 1 and 2
  13. 12 Rule 4: cases in which, and calculation of, credit allowed for tax on dividends
  14. 13 Rule 5: credit for tax charged directly on dividend
  15. 14 Rule 6: credit for underlying tax on dividend paid to 10% associate of payer
  16. 15 Rule 7: credit for underlying tax on dividend paid to sub-10% associate
  17. 16 Rule 8: credit for underlying tax on dividend paid by exchanged associate
  18. 17 Rule 9: credit in relation to dividends for spared tax
  19. 18 Entitlement to credit for foreign tax reduces UK tax by amount of the credit
  20. 19 Time limits for claims for relief under section 18(2)
  21. 20 Foreign tax includes tax spared because of international development relief
  22. 21 Meaning of “the arrangements”, “the non-UK territory”, “foreign tax” etc
  23. 23 Time limits for claims for relief under section 22(2)
  24. 25 Credit not allowed if relief allowed against overseas tax
  25. 26 Credit not allowed under arrangements unless taxpayer is UK resident
  26. 27 Credit not allowed if person elects against credit
  27. 28 Unilateral relief for Isle of Man or Channel Islands tax
  28. 29 Unilateral relief for tax on income from employment or office
  29. 30 Unilateral relief for non-UK tax on non-resident's UK branch or agency etc
  30. 31 Calculation of income or gain where remittance basis does not apply
  31. 32 Calculation of amount received where UK tax charged on remittance basis
  32. 33 Limit on credit: minimisation of the foreign tax
  33. 34 Reduction in credit: payment by reference to foreign tax
  34. 35 Disallowed credit: use as a deduction
  35. 36 Amount of limit
  36. 37 Credit against tax on trade income: further rules
  37. 38 Credit against tax on royalties: further rules
  38. 39 Credit reduced by reference to accrued income losses
  39. 40 Amount of limit
  40. 41 Amount of limit
  41. 42 Amount of limit
  42. 43 Profits attributable to permanent establishments for purposes of section 42(2)
  43. 44 Credit against tax on trade income
  44. 45 Credit against tax on trade income: anti-avoidance rules
  45. 46 Applying section 44(2): asset in hedging relationship with derivative contract
  46. 47 Applying section 44(2): royalty income
  47. 48 Applying section 44(2): “portfolio” of transactions, arrangements or assets
  48. 49 Restricting section 44(3) if company is a bank or connected with a bank
  49. 49A Limit on credit in cases involving qualifying loan relationships of CFCs
  50. 49B Applying section 42(2) to non-trading credits from loan relationships etc
  51. 50 Tax for period on loan relationships
  52. 51 Tax for period on intangible fixed assets
  53. 52 General deductions
  54. 53 Earlier years' non-trading deficits on loan relationships
  55. 54 Non-trading debits on loan relationships
  56. 55 Current year's non-trading deficits on loan relationships
  57. 56 Non-trading debits on intangible fixed assets
  58. 57 Credit in respect of dividend: taking account of underlying tax
  59. 58 Calculation if dividend paid by non-resident company to resident company
  60. 59 Meaning of “relevant profits” in section 58
  61. 60 Underlying tax to be left out of account on claim to that effect
  62. 61 Calculation if section 58 does not apply
  63. 62 Meaning of “relevant profits” in section 61
  64. 63 Non-UK company dividend paid to 10% investor: relief for UK and other tax
  65. 64 Meaning of “dividend-paying chain” of companies
  66. 65 Relief for underlying tax paid by company lower in dividend-paying chain
  67. 66 Limitations on section 65(4)
  68. 67 Restriction of relief if underlying tax at rate higher than rate of corporation tax
  69. 68 Meaning of “avoidance scheme” in section 67
  70. 69 Dividends paid out of transferred profits
  71. 70 Underlying tax reflecting interest on loans
  72. 71 Foreign taxation of group as single entity
  73. 71A Circumstances in which section 71B applies
  74. 71B Reduction of foreign tax paid on profits of overseas PE
  75. 72 Application of section 73(1)
  76. 73 Carry-forward and carry-back of unrelieved foreign tax
  77. 74 Rules for carrying back unrelieved foreign tax
  78. 75 Two or more establishments treated as a single establishment
  79. 76 Former and subsequent establishments regarded as distinct establishments
  80. 77 Claims for relief under section 73(1)
  81. 78 Meaning of “overseas permanent establishment”
  82. 79 Time limits for action if tax adjustment makes credit excessive or insufficient
  83. 80 Duty to give notice that adjustment has rendered credit excessive
  84. 81 Countering effect of avoidance arrangements
  85. 82 Conditions for the purposes of section 81(1)
  86. 83 Schemes and arrangements referred to in section 82(4)
  87. 84 Section 83(2) and (4): schemes enabling attribution of foreign tax
  88. 85 Section 83(2) and (4): schemes about effect of paying foreign tax
  89. 85A Section 83(2) and (4): schemes involving deemed foreign tax
  90. 86 Section 83(2) and (4): schemes about claims or elections etc
  91. 87 Section 83(2) and (4): schemes that would reduce a person's tax liability
  92. 88 Section 83(2) and (4): schemes involving tax-deductible payments
  93. 89 Contents of counteraction notice
  94. 90 Consequences of counteraction notices
  95. 91 Counteraction notices given before tax return made
  96. 92 Counteraction notices given after tax return made
  97. 93 Amendment, closure notices and discovery assessments in section 92 cases
  98. 94 Information made available for the purposes of section 92(4)
  99. 95 Interpretation of sections 89 to 94
  100. 96 Companies with overseas branches: restriction of credit
  101. 97 Companies with more than one category of business: restriction of credit
  102. 97A Commercial allocation of relevant income to different categories of long-term business
  103. 98 Attribution for section 97 purposes if category is gross roll-up business
  104. 99 Allocation of expenses etc in calculations under section 35 of CTA 2009
  105. 100 First limitation for purposes of section 99(2)
  106. 101 Second limitation for purposes of section 99(2)
  107. 102 Interpreting sections 99 to 101 for life assurance or gross roll-up business
  108. 103 Interpreting sections 99 to 101 ...
  109. 104 Interpreting sections 100 and 101: amounts referable to category of business
  110. 105 Meaning of “chargeable gain”
  111. 106 Chapters 1 and 2 apply to capital gains tax separately from other taxes
  112. 107 Disregard of foreign tax referable to derivative contract
  113. 108 Disregard of foreign tax attributable to interest under a loan relationship
  114. 109 Repo cases in which no disregard under section 108
  115. 110 Stock-lending cases in which no disregard under section 108
  116. 111 When payment to beneficiary treated as arising from foreign source
  117. 112 Deduction from income for foreign tax (instead of credit against UK tax)
  118. 113 Deduction from capital gain for foreign tax (instead of credit against UK tax)
  119. 114 Time limits for action if tax adjustment makes reduction too large or too small
  120. 115 Duty to give notice that adjustment has rendered reduction too large
  121. 116 Introduction to section 117
  122. 117 Tax treated as chargeable in respect of transfer of loan relationship, derivative contract or intangible fixed assets
  123. 118 Introduction to section 119
  124. 119 Tax treated as chargeable in respect of transfer of loan relationship, derivative contract or intangible fixed assets
  125. 120 Introduction to section 121
  126. 121 Tax treated as chargeable in respect of relevant transactions
  127. 122 Tax treated as chargeable in respect of gains on transfer of non-UK business
  128. 123 Interpretation of sections 116 to 122
  129. 124 Giving effect to solutions to cases and mutual agreements resolving cases
  130. 125 Effect of, and deadline for, presenting a case
  131. 126 Meaning of “the Arbitration Convention”
  132. 127 Giving effect to agreements, decisions and opinions under the Convention
  133. 128 Disclosure under the Convention
  134. 128A Power by regulations to give effect to international obligations etc
  135. 128B Giving effect to requirements under section 128A regulations
  136. 128C Disclosure under international obligations etc
  137. 129 Disclosure where relief given overseas for tax paid in the United Kingdom
  138. 130 Interpreting provision about UK taxation of profits of foreign enterprises
  139. 130A Interpreting provision about UK taxation of pensions etc
  140. 131 Interpreting provision about interest influenced by special relationship
  141. 132 Interpreting provision about royalties influenced by special relationship
  142. 133 Special relationship rule for royalties: matters to be shown by taxpayer
  143. 134 Correcting assessments where relief is available
  144. 135 Relief under this Part: introductory
  145. 136 Interpretation of Part
  146. 137 Income tax credit etc for special withholding tax
  147. 138 Amount and application of the deemed tax under section 137
  148. 139 Capital gains tax credit etc for special withholding tax
  149. 140 Provisions about the deemed tax under section 139
  150. 141 Credit under Chapter 2 of Part 2 to be allowed first
  151. 142 Conditions for purposes of section 143
  152. 143 Taking account of special withholding tax in calculating income or gains
  153. 144 Issue of certificate
  154. 145 Refusal to issue certificate and appeal against refusal
  155. 146 Application of this Part
  156. 147 Tax calculations to be based on arm's length, not actual, provision
  157. 148 The “participation condition”
  158. 148A Participation condition treated as met: transfer pricing notice
  159. 149 “Actual provision” and “affected persons”
  160. 150 “Transaction” and “series of transactions”
  161. 151 “Arm's length provision”
  162. 152 Arm's length provision where actual provision relates to securities
  163. 153 Arm's length provision where security issued and guarantee given
  164. 153A Certain guarantees not capable of being arm’s length
  165. 153B Election for deemed guarantee
  166. 154 Interpretation of sections 153A and 153B
  167. 155 “Potential advantage” in relation to United Kingdom taxation
  168. 156 “Losses” and “profits”
  169. 157 Direct participation
  170. 158 Indirect participation: defined by sections 159 to 161
  171. 159 Indirect participation: potential direct participant
  172. 160 Indirect participation: one of several major participants
  173. 161 Indirect participation: involvement in financing arrangements
  174. 162 Indirect participation: sections 148 , 175 and 219(2): further financing cases
  175. 162A Agreements for common management
  176. 162B Arrangements to avoid participation condition
  177. 163 Meaning of “connected” in sections 159 and 161
  178. 164 Part to be interpreted in accordance with OECD principles
  179. 164A UK to UK Exemption
  180. 165 Exemption for dormant companies
  181. 166 Exemption for small and medium-sized enterprises
  182. 167 Small and medium-sized enterprises: exceptions from exemption
  183. 167A Small enterprises: exception from exemption: transfer pricing notice
  184. 168 Medium-sized enterprises: exception from exemption: transfer pricing notice
  185. 169 Giving of transfer pricing notices
  186. 170 Appeals against transfer pricing notices
  187. 171 Tax returns where transfer pricing notice given
  188. 172 Meaning of “small enterprise” and “medium-sized enterprise”
  189. 173 Meaning of “qualifying territory” and “non-qualifying territory”
  190. 173A Exchange gains and losses arising as a result of qualifying loan relationships and derivative contracts
  191. 174 Claim by the affected person who is not potentially advantaged etc
  192. 174A Claims under section 174 where disadvantaged person within charge to income tax
  193. 175 Application of section 174 where guarantee disallowed
  194. 176 Claims under section 174: advantaged person must have made return
  195. 177 Time for making, or amending, claim under section 174
  196. 178 Meaning of “return” in sections 176 and 177
  197. 179 Compensating payment if advantaged person is controlled foreign company
  198. 180 Application of section 174(2)(a) in relation to transfers of trading stock etc
  199. 181 Section 182 applies to claims where actual provision relates to borrowing
  200. 182 Making of section 182 claims
  201. 183 Giving effect to section 182 claims
  202. 184 Amending a section 182 claim if it is followed by relevant notice
  203. 185 Notice to potential claimants
  204. 186 Extending claim period if notice under section 185 not given or given late
  205. 187 Tax treatment if actual interest exceeds arm's length interest
  206. 187A Excess interest treated as a ... distribution
  207. 188 Double taxation relief by way of credit for foreign tax
  208. 189 Double taxation relief by way of deduction for foreign tax
  209. 190 Meaning of “relevant notice”
  210. 191 When sections 192 to 194 apply
  211. 192 Attribution to guarantor company of things done by borrower
  212. 192A Provision for cases within Part 6A
  213. 193 Interaction between claims under sections 174 and 192(1)
  214. 194 Claims under section 192(1): general provisions
  215. 195 Qualifying conditions for purposes of section 196
  216. 196 Balancing payments between affected persons: no charge to, or relief from, tax
  217. 197 Qualifying conditions for purposes of section 198
  218. 198 Balancing payments by guarantor to borrower: no charge to, or relief from, tax
  219. 199 Pre-conditions for making election under section 200
  220. 200 Election to pay tax rather than make balancing payments
  221. 201 Pre-conditions for making election under section 202
  222. 202 Election, in guarantee case, to pay tax rather than make balancing payments
  223. 203 Elections under section 200 or 202
  224. 204 Meaning of “capital market condition” in sections 199 and 201
  225. 205 Provision made or imposed between ring-fence trade and other activities
  226. 206 Meaning of “oil-related ring-fence trade” in sections 205 and 218
  227. 206A Modification of basic rule where allowances restricted for certain expenditure
  228. 207 Application of Part to unit trusts
  229. 208 The determinations which require the Commissioners' sanction
  230. 209 Determinations exempt from requirement for Commissioners' sanction
  231. 210 The requirement for the Commissioners' sanction
  232. 211 Restriction of right to appeal against Commissioners' approval
  233. 212 Appeals
  234. 213 Capital allowances
  235. 214 Chargeable gains
  236. 215 Manner of making adjustments to give effect to Part
  237. 216 Meaning of “the relevant activities”
  238. 217 Meaning of “control” and “firm”
  239. 217A Introduction
  240. 217B Unassessed transfer pricing profits
  241. 217C Conditions for being assessed under this Part at the UTPP rate
  242. 217D Effective tax mismatch outcome
  243. 217E Tax design condition
  244. 217F Preliminary notices
  245. 217G Representations by the company
  246. 217H Assessment
  247. 217I Amendment of company tax return by company
  248. 217J Amendment of assessment by HMRC
  249. 217K No postponement except before assessment is finalised for tax on same profits
  250. 217L Closure notices: rules relating to period for amendments
  251. 217M Appeal against assessment
  252. 217N Review of assessment
  253. 217P Settling of appeal by agreement
  254. 217Q No repayment
  255. 217R Exclusion of reliefs, deductions and set-offs
  256. 217S Assessment otherwise than at UTPP rate: no deduction for excess losses
  257. 217T Interpretation
  258. 218 Meaning of “advance pricing agreement”
  259. 219 Meaning of “associate” in section 218(2)(e)
  260. 220 Effect of agreement on party to it
  261. 221 Effect of revocation of agreement or breach of its conditions
  262. 222 Effect of agreement on non-parties
  263. 223 Application for agreement
  264. 224 Provision in agreement about years ended or begun before agreement made
  265. 225 Modification and revocation of agreement
  266. 226 Annulment of agreement for misrepresentation
  267. 227 Penalty for misrepresentation in connection with agreement
  268. 228 Party to agreement: duty to provide information
  269. 229 Modifications of agreement for double taxation purposes
  270. 230 Interpretation of Part: meaning of “Commissioners” and “officer”
  271. 259A Overview of Part
  272. 259B “Tax” means certain taxes on income and includes foreign tax etc
  273. 259BA References to equivalent provision to this Part under the law of a territory outside the United Kingdom
  274. 259BB Meaning of “payment”, “quasi-payment”, “payer”, “payee” etc
  275. 259BC The basic rules
  276. 259BD Chargeable companies in respect of CFCs and foreign CFCs
  277. 259BE Meaning of “hybrid entity”, “investor” and “investor jurisdiction”
  278. 259BF Meaning of “permanent establishment”
  279. 259C Overview of Chapter
  280. 259CA Circumstances in which the Chapter applies
  281. 259CB Hybrid or otherwise impermissible deduction/non-inclusion mismatches and their extent
  282. 259CC Interpretation of section 259CB
  283. 259CD Counteraction where the payer is within the charge to corporation tax for the payment period
  284. 259CE Counteraction where a payee is within the charge to corporation tax
  285. 259D Overview of Chapter
  286. 259DA Circumstances in which the Chapter applies
  287. 259DB Meaning of “hybrid transfer arrangement”, “underlying instrument” etc
  288. 259DC Hybrid transfer deduction/non-inclusion mismatches and their extent
  289. 259DD Interpretation of section 259DC
  290. 259DE The financial trader exclusion
  291. 259DF Counteraction where the payer is within the charge to corporation tax for the payment period
  292. 259DG Counteraction where a payee is within the charge to corporation tax
  293. 259E Overview of Chapter
  294. 259EA Circumstances in which the Chapter applies
  295. 259EB Hybrid payer deduction/non-inclusion mismatches and their extent
  296. 259EC Counteraction where the hybrid payer is within the charge to corporation tax for the payment period
  297. 259ED Counteraction where a payee is within the charge to corporation tax
  298. 259F Overview of Chapter
  299. 259FA Circumstances in which the Chapter applies
  300. 259FB Counteraction of the excessive PE deduction
  301. 259FC Meaning of excessive PE inclusion income
  302. 259G Overview of Chapter
  303. 259GA Circumstances in which the Chapter applies
  304. 259GB Hybrid payee deduction/non-inclusion mismatches and their extent
  305. 259GC Counteraction where the payer is within the charge to corporation tax for the payment period
  306. 259GD Counteraction where the investor is within the charge to corporation tax
  307. 259GE Counteraction where a hybrid payee is an LLP
  308. 259H Overview of Chapter
  309. 259HA Circumstances in which the Chapter applies
  310. 259HB Multinational payee deduction/non-inclusion mismatches and their extent
  311. 259HC Counteraction of the multinational payee deduction/non-inclusion mismatch
  312. 259I Overview of Chapter
  313. 259IA Circumstances in which the Chapter applies
  314. 259IB Counteraction where the investor is within the charge to corporation tax
  315. 259IC Counteraction where the hybrid entity is within the charge to corporation tax
  316. 259ICA Deemed dual inclusion income for the purposes of section 259IC
  317. 259ID Section 259ID income for the purposes of section 259IC
  318. 259J Overview of Chapter
  319. 259JA Circumstances in which the Chapter applies
  320. 259JB Counteraction where mismatch arises because of a dual resident company
  321. 259JC Counteraction where mismatch arises because of a relevant multinational and the UK is the parent jurisdiction
  322. 259JD Counteraction where mismatch arises because of a relevant multinational and is not counteracted in the parent jurisdiction
  323. 259JE Meaning of excessive PE inclusion income
  324. 259K Overview of Chapter
  325. 259KA Circumstances in which the Chapter applies
  326. 259KB Meaning of “dual territory double deduction”, “excessive PE deduction” and “PE jurisdiction”
  327. 259KC Denial of the relevant deduction in relation to the imported mismatch payment
  328. 259KD Deductions from dual inclusion income
  329. 259KE Limit on reduction under section 259KC
  330. 259KF Provision for cases within Part 4
  331. 259L Adjustments where suppositions cease to be reasonable
  332. 259LA Deduction from taxable total profits where an amount of ordinary income arises late
  333. 259LB Adjustments in light of later treatment for accounting purposes
  334. 259ZM Overview of Chapter
  335. 259ZMA Circumstances in which Chapter applies
  336. 259ZMB Claims for allocation of DII surplus
  337. 259ZMC The unused part of the DII surplus
  338. 259ZMD The unused part of the DII shortfall
  339. 259ZME Groups of companies
  340. 259ZMF Meaning of “dual inclusion income” and “counteraction amount”
  341. 259M Countering the effect of avoidance arrangements
  342. 259MA Meaning of “transparent fund”
  343. 259MB Application of Chapters 3, 4, 5 and 7
  344. 259MC Application of Chapter 9
  345. 259MD Application of Chapter 11
  346. 259N Meaning of “financial instrument”
  347. 259NA Meaning of “relevant investment fund”
  348. 259NB Control groups
  349. 259NC Related persons
  350. 259ND Meaning of “50% investment” and “25% investment”
  351. 259NDA Meaning of “qualifying institutional investor” etc
  352. 259NE Treatment of a person who is a member of a partnership
  353. 259NEZA Securitisation companies
  354. 259NEA Priority
  355. 259NEB Relevant debt relief circumstances: introductory
  356. 259NEC Release of debts
  357. 259NED Release of connected companies debts
  358. 259NEE Release of connected companies debts during creditor’s insolvency
  359. 259NEF Corporate rescue: debt released shortly after connection arises
  360. 259NF Definitions
  361. 354 Power to make regulations about tax treatment of participants
  362. 355 Meaning of “offshore fund”
  363. 356 Meaning of “mutual fund”
  364. 357 Exceptions to definition of “mutual fund”
  365. 358 Meaning of “relevant income-producing asset”
  366. 359 Power to make regulations about exceptions to definition of “mutual fund”
  367. 360 Treatment of umbrella arrangements
  368. 361 Treatment of arrangements comprising more than one class of interest
  369. 362 Meaning of “participant” and “participation”
  370. 363 Meaning of “umbrella arrangements” and “part of umbrella arrangements”
  371. 363A Residence of undertakings for collective investment in transferable securities and alternative investment funds
  372. 364 Oil activities
  373. 365 Alternative finance arrangements
  374. 366 Power to amend the alternative finance provisions
  375. 367 Leasing arrangements: finance leases and loans
  376. 368 Sale and lease-back etc
  377. 369 Factoring of income etc
  378. 370 UK representatives of non-UK residents
  379. 371 Miscellaneous relocations
  380. 371AA Overview of Part
  381. 371BA Introduction to the CFC charge
  382. 371BB The CFC charge gateway
  383. 371BC Charging the CFC charge
  384. 371BD Chargeable companies
  385. 371BE Companies which are managers of offshore funds etc
  386. 371BF Companies which are participants in offshore funds
  387. 371BG Companies holding shares as trading assets etc
  388. 371BH Companies carrying on BLAGAB
  389. 371BI Banking companies
  390. 371CA Does Chapter 4 apply?
  391. 371CB Does Chapter 5 apply?
  392. 371CC Incidental non-trading finance profits: the 5% rule
  393. 371CD Incidental non-trading finance profits: the further 5% rule
  394. 371CE Does Chapter 6 apply?
  395. 371CEA Section 371CE: meaning of “group treasury company”
  396. 371CF Does Chapter 7 apply?
  397. 371CG Does Chapter 8 apply?
  398. 371DA Introduction to Chapter
  399. 371DB The steps
  400. 371DC Exclusion: UK activities a minority of total activities
  401. 371DD Exclusion: economic value
  402. 371DE Exclusion: independent companies' arrangements
  403. 371DF Exclusion: trading profits (the basic rule)
  404. 371DG Exclusion: trading profits (business premises condition)
  405. 371DH Exclusion: trading profits (income condition)
  406. 371DI Exclusion: trading profits (management expenditure condition)
  407. 371DJ Exclusion: trading profits (IP condition)
  408. 371DK Exclusion: trading profits (export of goods condition)
  409. 371DL Exclusion: trading profits (anti-avoidance)
  410. 371EA The basic rule
  411. 371EB UK activities
  412. 371EC Capital investment from the UK
  413. 371ED Arrangements in lieu of dividends etc to UK resident companies etc
  414. 371EE Leases to UK resident companies etc
  415. 371FA The basic rule
  416. 371FB Qualifying loan relationships
  417. 371FC Loans from foreign permanent establishments of UK resident companies
  418. 371FD Exclusion: banking business
  419. 371FE Exclusion: insurance business
  420. 371GA The basic rule
  421. 371HA The basic rule
  422. 371IA The basic rule
  423. 371IB Loans funded out of qualifying resources
  424. 371IC What is the “qualifying value” of “relevant pre-acquisition funds or other assets”?
  425. 371ID The 75% exemption
  426. 371IE The “matched interest profits” exemption
  427. 371IF Determining the profits of a qualifying loan relationship
  428. 371IG What is a “qualifying loan relationship”?
  429. 371IH Exclusions from definition of “qualifying loan relationship”
  430. 371II Power to amend definitions
  431. 371IJ Claims
  432. 371JA Introduction to Chapter
  433. 371JB The basic rule
  434. 371JC When does an exempt period begin?
  435. 371JD How long is an exempt period?
  436. 371JE Adjustment of profits passing through the CFC charge gateway
  437. 371JF Anti-avoidance
  438. 371JG Amendment of company tax returns
  439. 371KA Introduction to Chapter
  440. 371KB The basic rule
  441. 371KC How to determine the territory in which a CFC is resident
  442. 371KD What is “the threshold amount”?
  443. 371KE Category A income: the basic rule
  444. 371KF Category A income: permanent establishments in excluded territories
  445. 371KG Category B income
  446. 371KH Category C income
  447. 371KI Category D income
  448. 371KJ The IP condition
  449. 371LA Introduction to Chapter
  450. 371LB The basic rule
  451. 371LC Anti-avoidance
  452. 371MA Introduction to Chapter
  453. 371MB The basic rule
  454. 371MC Anti-avoidance
  455. 371NA Introduction to Chapter
  456. 371NB The basic rule
  457. 371NC Reductions to “the local tax amount”
  458. 371ND What are “designer rate tax provisions”?
  459. 371NE How to determine “the corresponding UK tax”
  460. 371OA Application of Chapter
  461. 371OB Provision about interpretation
  462. 371OC “Relevant interests” of UK resident companies
  463. 371OD “Relevant interests” of persons related to UK resident companies
  464. 371OE Other “relevant interests”
  465. 371PA What is “creditable tax”?
  466. 371QA Application of Chapter
  467. 371QB Provision about interpretation
  468. 371QC The basic rules
  469. 371QD Apportionments to be made in proportion to shareholding
  470. 371QE Indirect shareholdings
  471. 371QF Variable shareholdings
  472. 371QG Anti-avoidance
  473. 371RA Overview of Chapter
  474. 371RB Legal and economic control
  475. 371RC Legal and economic control: the 40% rule
  476. 371RD Legal and economic control: supplementary provision
  477. 371RE Control determined by reference to accounting standards
  478. 371RF Power to amend section 371RE etc
  479. 371RG Companies in which a UK resident company has more than a 50% investment
  480. 371SA Overview of Chapter
  481. 371SB What are “assumed taxable total profits” and “assumed total profits”?
  482. 371SC What are “the corporation tax assumptions”?
  483. 371SD UK residence etc
  484. 371SE Close company
  485. 371SF Claims and elections
  486. 371SG Disapplication of assumption in section 371SF(1)
  487. 371SH Elections under section 9A of CTA 2010
  488. 371SI Modification of sections 6 and 7 of CTA 2010
  489. 371SJ Elections for leases to be treated as long funding leases
  490. 371SK Intangible fixed assets
  491. 371SKA Restrictions on certain deductions: deductions allowances
  492. 371SL Group relief etc
  493. 371SLA Corporate interest restriction
  494. 371SM Capital allowances
  495. 371SN Unremittable overseas income
  496. 371SO Tax advantages
  497. 371SP Disguised interest: application of Chapter 2A of Part 6 of CTA 2009
  498. 371SQ Shares accounted for as liabilities: application of section 521C of CTA 2009
  499. 371SR Double taxation relief: countering effect of avoidance arrangements
  500. 371TA The basic rule
  501. 371TB How to determine the territory in which the CFC is resident
  502. 371TC Elections and designations about residence
  503. 371UA Introduction to Chapter
  504. 371UB Application of the Taxes Acts to the CFC charge
  505. 371UBA Payments in respect of a charge on a banking company: information to be provided
  506. 371UC Just and reasonable apportionments
  507. 371UD Relief against sum charged
  508. 371UE Appeals affecting more than one person
  509. 371UF Recovery of sum charged from other UK resident companies
  510. 371VA Definitions
  511. 371VB Accounting periods
  512. 371VC Accounting profits
  513. 371VD Adjustments to accounting profits
  514. 371VE Cell companies etc
  515. 371VF Connected persons etc
  516. 371VG Finance profits
  517. 371VH Interests in companies
  518. 371VI Property business profits
  519. 371VIA Relevant finance leases
  520. 371VJ Regulations
  521. 372 Overview
  522. 373 Meaning of “subject to interest restrictions”, “the total disallowed amount” etc
  523. 374 Interest restriction returns
  524. 375 Disallowance of deductions: full interest restriction return submitted
  525. 376 Disallowance of deductions: no return, or non-compliant return, submitted
  526. 377 Disallowance of deductions: identification of the tax-interest amounts to be left out of account
  527. 378 Disallowed tax-interest expense amounts carried forward
  528. 379 Reactivation of interest
  529. 380 Reactivation of deductions: identification of the tax-interest amounts to be brought into account
  530. 381 Set-off of disallowances and reactivations in the same accounting period
  531. 382 The tax-interest expense amounts of a company
  532. 383 Relevant loan relationship debits
  533. 384 Relevant derivative contract debits
  534. 385 The tax-interest income amounts of a company
  535. 386 Relevant loan relationship credits
  536. 387 Relevant derivative contract credits
  537. 388 Double taxation relief
  538. 389 The “net tax-interest expense” or “net tax-interest income” of a company
  539. 390 The worldwide group's aggregate net tax-interest expense and income
  540. 391 Meaning of “impairment loss”
  541. 391A Amounts capitalised in carrying value of intangible fixed assets
  542. 392 The interest capacity of a worldwide group for a period of account
  543. 393 Amount of interest allowance for a period that is “available” in a later period
  544. 394 When interest allowance is “used”
  545. 395 Amount of interest allowance for a period of account that is “unexpired” in later period
  546. 395A Carry forward of interest allowance: new holding company
  547. 396 The interest allowance of a worldwide group for a period of account
  548. 397 Basic interest allowance calculated using fixed ratio method
  549. 398 Basic interest allowance calculated using group ratio method
  550. 399 The group ratio percentage
  551. 400 The debt cap
  552. 400A Carry forward of excess debt cap: new holding company
  553. 401 Effect of group ratio (blended) election on group ratio percentage
  554. 402 Effect of group ratio (blended) election on group ratio debt cap
  555. 403 Calculations under sections 401 and 402: investor worldwide groups
  556. 404 Meaning of “investor”, “related party investor” and investor's “share”
  557. 405 The aggregate tax-EBITDA of a worldwide group
  558. 406 The tax-EBITDA of a company
  559. 407 Amounts not brought into account in determining a company's tax-EBITDA
  560. 408 Excluded relevant intangibles debits and excluded relevant intangibles credits
  561. 409 Double taxation relief
  562. 410 Net group-interest expense
  563. 411 “Relevant expense amount” and “relevant income amount”
  564. 412 Section 411: interpretation
  565. 413 Adjusted net group-interest expense
  566. 414 Qualifying net group-interest expense
  567. 415 Section 414: interpretation
  568. 416 Group-EBITDA
  569. 417 The capital (expenditure) adjustment
  570. 418 The capital (fair value movement) adjustment
  571. 419 The capital (disposals) adjustment
  572. 420 Derivative contracts subject to fair value accounting
  573. 421 Derivative contracts subject to fair value accounting: interpretation
  574. 422 Group-EBITDA (chargeable gains) election
  575. 423 Capitalised interest brought into account for tax purposes in accordance with GAAP
  576. 424 Employers' pension contributions
  577. 424A Unpaid employees’ remuneration
  578. 425 Employee share acquisitions
  579. 426 Changes in accounting policy
  580. 427 Group interest and group-EBITDA
  581. 428 Section 427: associated worldwide groups
  582. 429 Meaning of “non-consolidated associate”
  583. 430 Interest allowance (consolidated partnerships) election
  584. 431 Interpretation of Chapter
  585. 432 Overview of Chapter
  586. 433 Meaning of “qualifying infrastructure company”
  587. 434 Elections under section 433
  588. 435 Group elections modifying the operation of sections 433 and 434
  589. 436 Meaning of “qualifying infrastructure activity”
  590. 437 Section 436: supplementary
  591. 438 Exemption for interest payable to third parties etc
  592. 438A Application of section 438: certain creditors treated as qualifying infrastructure companies
  593. 439 Exemption in respect of certain pre-13 May 2016 loan relationships
  594. 440 Loans etc made by qualifying infrastructure companies to be ignored
  595. 441 Tax-EBITDA of qualifying infrastructure company to be nil
  596. 442 Amounts of qualifying infrastructure company left out of account for other purposes
  597. 443 Interest capacity for group with qualifying infrastructure company etc
  598. 444 Joint venture companies
  599. 445 Joint venture groups
  600. 446 Joint ventures: supplementary
  601. 447 Partnerships and other transparent entities
  602. 448 Decommissioning
  603. 449 Minor definitions for purposes of this Chapter
  604. 450 Banking companies
  605. 451 Oil and gas
  606. 452 Real Estate Investment Trusts
  607. 453 Insurance entities
  608. 454 Members of Lloyd's
  609. 454A Investments held by investment managers
  610. 455 Shipping companies subject to tonnage tax
  611. 456 Creditor relationships of companies determined on basis of fair value accounting
  612. 457 Elections under section 456: deemed debits and credits
  613. 458 Co-operative and community benefit societies etc
  614. 459 Charities
  615. 460 Long funding operating leases and finance leases
  616. 461 Counteracting effect of avoidance arrangements
  617. 462 Expressions relating to “related parties”: introduction
  618. 463 Whether a person is generally a “related party” of another
  619. 464 Meaning of “25% investment”
  620. 465 Attribution of rights and interests
  621. 466 Certain loan relationships etc to be treated as made between related parties
  622. 467 Holdings of debt and equity in same proportions
  623. 468 Debts with same rights where unrelated parties hold more than 50%
  624. 469 Debt restructuring
  625. 470 Ordinary independent financing arrangements by banks and others
  626. 471 Loans made by relevant public bodies
  627. 472 Finance leases granted before 20 March 2017
  628. 473 Meaning of “a worldwide group”, “ultimate parent” etc
  629. 474 Interpretation of section 473: “relevant entity”
  630. 475 Meaning of “non-consolidated subsidiary” and “consolidated subsidiary”
  631. 476 Continuity of identity of a worldwide group through time
  632. 477 Treatment of stapled entities
  633. 478 Treatment of business combinations
  634. 479 “Financial statements” of a worldwide group
  635. 480 “Period of account” of worldwide group
  636. 481 Actual financial statements not drawn up on acceptable principles
  637. 482 Actual financial statements drawn up on acceptable principles but consolidating wrong subsidiaries
  638. 483 Actual financial statements covering more than one worldwide group
  639. 484 No actual financial statements: ultimate parent draws up financial statements
  640. 485 No actual financial statements: other cases
  641. 486 Election altering period of account deemed under section 485
  642. 487 Actual financial statements ignored if for too long a period or too late
  643. 488 Meaning of “IAS financial statements”
  644. 489 References to amounts recognised in financial statements
  645. 490 Meaning of “relevant accounting period”
  646. 491 Meaning of “relevant public body”
  647. 492 Meaning of “UK group company”
  648. 493 Embedded derivatives
  649. 494 Other interpretation
  650. 495 Financial statements: different treatment by group or members
  651. 496 Parties to capital market arrangements
  652. 497 Change in accounting standards
  653. 498 Regulations
  654. 499 Orders and regulations
  655. 500 Abbreviated references to Acts
  656. 501 Minor and consequential amendments
  657. 502 Transitional provisions and savings
  658. 503 Repeals and revocations
  659. 504 Index of defined expressions
  660. 505 Extent
  661. 506 Commencement
  662. 507 Short title
  663. Schedule A1 Assessment of unassessed transfer pricing profits: partnerships and Lloyd’s syndicates
  664. SCHEDULE 1 Oil activities: new Chapter 16A of Part 2 of ITTOIA 2005
  665. SCHEDULE 2 Alternative finance arrangements
  666. SCHEDULE 3 Leasing arrangements: finance leases and loans
  667. SCHEDULE 4 Sale and lease-back etc: new Part 12A of ITA 2007
  668. SCHEDULE 5 Factoring of income etc: new Chapters 5B and 5C of Part 13 of ITA 2007
  669. SCHEDULE 6 UK Representatives of non-UK residents
  670. SCHEDULE 7 Miscellaneous relocations
  671. SCHEDULE 7A Interest restriction returns
  672. SCHEDULE 8 Minor and consequential amendments
  673. SCHEDULE 9 Transitionals and savings etc
  674. SCHEDULE 10 Repeals and revocations
  675. SCHEDULE 11 Index of defined expressions used in Parts 2 to 8

Proposed changes to this act

No one has proposed a change to this act yet.

675 provisions

371DD Exclusion: economic value

(1) Subsection (2) applies if— (a) an asset or risk is included in the relevant assets and risks, (b) the SPFs which are relevant to the economic ownership of the asset, or the assumption and management of the risk, are wholly or partly UK SPFs as determined at step 4 in section 371DB(1), and (c) as a result of that determination, an amount is included in the provisional Chapter 4 profits. (2) The amount is to be excluded from the provisional Chapter 4 profits if— (a) the net economic value to the CFC group which results from the holding of the asset, or the bearing of the risk, exceeds what that value would have been had the asset been held, or the risk been borne, solely by UK resident companies connected with the CFC, and (b) the relevant non-tax value is a substantial proportion of the excess value mentioned in paragraph (a). (3) “Net economic value” does not include any value which derives (directly or indirectly) from the reduction or elimination of any liability of any person to tax or duty imposed under the law of any territory outside the United Kingdom. (4) “The relevant non-tax value” is the excess value mentioned in subsection (2)(a) so far as it does not derive (directly or indirectly) from the reduction or elimination of any liability of any person to tax or duty imposed under the law of the United Kingdom. (5) Subsection (6) applies if— (a) there are SPFs which are relevant to the economic ownership of a number of assets, or the assumption and management of a number of risks, included in the relevant assets and risks, and (b) it is not reasonably practicable to separate those assets or risks for the purpose of determining the extent to which the SPFs are relevant to the economic ownership of each of those assets, or the assumption and management of each of those risks, separately. (6) In subsections (1) and (2) references to an asset or risk are to be read as references to those assets or risks taken together.

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371DE Exclusion: independent companies' arrangements

(1) Subsection (2) applies if— (a) an asset or risk is included in the relevant assets and risks, (b) the SPFs which are relevant to the economic ownership of the asset, or the assumption and management of the risk, are wholly or partly UK SPFs as determined at step 4 in section 371DB(1), (c) as a result of that determination, an amount is included in the provisional Chapter 4 profits, and (d) the UK SPFs are carried out by companies connected with the CFC under arrangements made between the CFC and those companies. (2) The amount is to be excluded from the provisional Chapter 4 profits if it is reasonable to suppose that, were the SPFs which are UK SPFs not to be carried out by companies connected with the CFC, the CFC would enter into arrangements with companies not connected with the CFC which— (a) would be structured in the same way as the arrangements mentioned in subsection (1)(d), and (b) would, in relation to the CFC's business, have the same commercial effect as those arrangements. (3) Subsection (4) applies if— (a) there are SPFs which are relevant to the economic ownership of a number of assets, or the assumption and management of a number of risks, included in the relevant assets and risks, and (b) it is not reasonably practicable to separate those assets or risks for the purpose of determining the extent to which the SPFs are relevant to the economic ownership of each of those assets, or the assumption and management of each of those risks, separately. (4) In subsection (1) references to an asset or risk are to be read as references to those assets or risks taken together.

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371DF Exclusion: trading profits (the basic rule)

(1) All trading profits are to be excluded from the provisional Chapter 4 profits if the following conditions are met— (a) the business premises condition (see section 371DG), (b) the income condition (see section 371DH), (c) the management expenditure condition (see section 371DI), (d) the IP condition (see section 371DJ), and (e) the export of goods condition (see section 371DK). (2) Trading profits are also to be excluded from the provisional Chapter 4 profits in accordance with section 371DI(7) and (8) (so far as applicable). (3) This section is subject to section 371DL (anti-avoidance).

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371DG Exclusion: trading profits (business premises condition)

(1) This section applies for the purposes of section 371DF(1)(a). (2) The business premises condition is met if, at all times during the accounting period, the CFC has in the territory in which it is resident for the accounting period premises— (a) which are, or are intended to be, occupied and used with a reasonable degree of permanence, and (b) from which the CFC's activities in that territory are wholly or mainly carried on. (3) “Premises” means— (a) an office, shop, factory or other building or part of a building, (b) a mine, an oil or gas well, a quarry or other place of extraction of natural resources, or (c) a building site or the site of a construction or installation project, but only if the building work or project has a duration of at least 12 months.

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371DH Exclusion: trading profits (income condition)

(1) This section applies for the purposes of section 371DF(1)(b). (2) The income condition is met if no more than 20% of the CFC's relevant trading income derives (directly or indirectly) from— (a) UK resident persons, or (b) UK permanent establishments of non-UK resident companies. (3) For the purposes of subsection (2) the CFC's “relevant trading income” is its trading income, excluding any income arising from the sale in the United Kingdom of goods produced by the CFC in the territory in which it is resident for the accounting period. (4) Subsection (5) applies instead of subsection (2) if, at any time during the accounting period, the CFC's main business is banking business in relation to which the CFC is regulated in the territory in which it is resident for the accounting period. (5) The income condition is met if the CFC's relevant UK trading income is no more than 10% of the CFC's trading income. (6) The CFC's “relevant UK trading income” is its trading income so far as it derives (directly or indirectly) from— (a) UK resident persons, or (b) UK permanent establishments of non-UK resident companies, but excluding interest received from UK resident companies which are connected or associated with the CFC. (7) Neither subsection (2)(a) nor subsection (6)(a) covers income deriving (directly or indirectly) from a UK resident company if— (a) the company has made an election under section 18A of CTA 2009 (exemption for profits or losses of foreign permanent establishments), and (b) an expense corresponding to the income is brought into account for the purpose of determining any exemption adjustment in relation to the company under that section.

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371DI Exclusion: trading profits (management expenditure condition)

(1) This section applies for the purposes of section 371DF(1)(c). (2) The management expenditure condition is met if the UK related management expenditure is no more than 20% of the total related management expenditure. (3) “The total related management expenditure” is the total of the following expenditure incurred during the accounting period by the CFC— (a) expenditure incurred in the employment of any member of the CFC's staff who carries out relevant management functions, (b) expenditure incurred in the engagement (directly or indirectly) of any individual who is not a member of the CFC's staff but who carries out relevant management functions in consequence of an arrangement between the individual and the CFC, and (c) expenditure incurred in the engagement (directly or indirectly) of any company related to the CFC so far as the expenditure represents expenditure incurred by the related company in— (i) the employment of any member of the related company's staff who carries out relevant management functions, or (ii) the engagement by the related company (directly or indirectly) of any individual who is not a member of the related company's staff but who carries out relevant management functions in consequence of an arrangement between the individual and the related company. (4) “The UK related management expenditure” is the total related management expenditure so far as it relates to members of staff or other individuals who carry out relevant management functions in the United Kingdom. (5) A person carries out a “relevant management function” if the person manages or controls any assets or risks included in the relevant assets and risks. (6) This covers (for example) a person who formulates plans or makes decisions in relation to— (a) the acquisition, creation, development or exploitation of such assets, or (b) the taking on, or bearing, of such risks. (7) Subsection (8) applies if— (a) the conditions mentioned in section 371DF(1)(a), (b), (d) and (e) are met but the management expenditure condition is not met, (b) there is an asset or risk which is included in the relevant assets and risks and to which any part of the total related management expenditure relates, (c) the 50% condition is met in relation to that asset or risk, and (d) trading profits arising from that asset or risk are included in the provisional Chapter 4 profits. (8) The trading profits are to be excluded from the provisional Chapter 4 profits. (9) The 50% condition is met in relation to an asset or risk if the UK related management expenditure so far as relating to the asset or risk is no more than 50% of the total related management expenditure so far as relating to the asset or risk. (10) Subsection (11) applies if— (a) any part of the total related management expenditure relates to a number of assets or risks included in the relevant assets and risks, and (b) it is not reasonably practicable to separate those assets or risks for the purpose of determining the extent to which the total related management expenditure relates to each of those assets or risks separately. (11) Subsections (7) to (9) apply in relation to those assets or risks taken together and references to an asset or risk are to be read accordingly.

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371DJ Exclusion: trading profits (IP condition)

(1) This section applies for the purposes of section 371DF(1)(d). (2) The IP condition is met unless— (a) the CFC's assumed total profits include amounts arising from intellectual property held by the CFC (“the exploited IP”), (b) all or parts of the exploited IP were— (i) transferred (directly or indirectly) to the CFC by persons related to the CFC at times during the relevant period, or (ii) otherwise derived (directly or indirectly) at times during that period out of or from intellectual property held at times during that period by persons related to the CFC, (c) as a result of those transfers or other derivations, the value of the intellectual property held by those persons related to the CFC, taken together, has been significantly reduced from what it would otherwise have been, and (d) if only parts of the exploited IP were so transferred or derived, the significance condition is met. (3) The significance condition is met if— (a) the parts of the exploited IP (“the UK derived IP”) which were transferred or otherwise derived as mentioned in subsection (2)(b) are, taken together, a significant part of the exploited IP, or (b) as a result of the transfers or other derivations of the UK derived IP, the CFC's assumed total profits are significantly higher than what they would otherwise have been. (4) In relation to a non-UK resident person who is related to the CFC, in this section references to the transfer or holding of intellectual property by a person related to the CFC are limited to, as the case may be— (a) the transfer of intellectual property which before the transfer was held by the non-UK resident person (wholly or partly) for the purposes of a permanent establishment which the person has in the United Kingdom, or (b) the holding of intellectual property by the non-UK resident person (wholly or partly) for those purposes. (5) “The relevant period” means the period covering the accounting period and the 6 years before the accounting period.

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371DK Exclusion: trading profits (export of goods condition)

(1) This section applies for the purposes of section 371DF(1)(e). (2) The export of goods condition is met if no more than 20% of the CFC's trading income arises from goods exported from the United Kingdom, excluding goods exported from the United Kingdom to the territory in which the CFC is resident for the accounting period.

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371DL Exclusion: trading profits (anti-avoidance)

(1) This section applies if— (a) a condition mentioned in section 371DF(1) is met, or (b) the 50% condition mentioned in section 371DI is met in relation to an asset or risk (or a number of assets or risks taken together), but it is reasonable to suppose that that would not be the case apart from an arrangement falling within subsection (3). (2) The condition is to be taken not to be met or (as the case may be) not to be met in relation to the asset or risk (or the assets or risks taken together). (3) An arrangement falls within this subsection if— (a) the arrangement involves the CFC group organising (or reorganising) a significant part of its business in a particular way, and (b) the main purpose, or one of the main purposes, of that organising (or reorganising) is to secure that— (i) one or more of the conditions mentioned in section 371DF(1) are met, or (ii) the 50% condition mentioned in section 371DI is met in relation to one or more assets or risks.

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371EA The basic rule

(1) The CFC's profits falling within this Chapter for the purposes of step 2 in section 371BB(1) (the CFC charge gateway) are its non-trading finance profits so far as they fall within any of sections 371EB to 371EE. (2) In this Chapter references to the CFC's non-trading finance profits are to be read in accordance with section 371CB(2) and, so far as applicable, section 371CB(8).

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371EB UK activities

(1) To determine the extent to which the CFC's non-trading finance profits fall within this section, take steps 1 to 5 and 7 in section 371DB(1) as if references in section 371DB to the CFC's assumed total profits were references to its non-trading finance profits. (2) Non-trading finance profits fall within this section so far as they would be included in the provisional Chapter 4 profits as determined on the basis mentioned in subsection (1).

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371EC Capital investment from the UK

(1) Non-trading finance profits fall within this section so far as they arise from relevant UK funds or other assets. (2) Subsection (3) applies in relation to any profits which (apart from subsection (3)) would fall within this section if— (a) an amount of expenditure incurred by the CFC in managing the relevant UK funds or other assets itself was brought into account in calculating the profits, and (b) it is reasonable to suppose that the amount of expenditure is less than the fee which a company not connected with the CFC would charge the CFC for carrying out the same management activities. (3) There is to be deducted from the profits an amount representing what it is reasonable to suppose the difference between the amount of expenditure and the fee would be. (4) “Relevant UK funds or other assets” means— (a) funds or other assets which represent, or derive (directly or indirectly) from, any capital contribution to the CFC made (directly or indirectly) by a UK connected company (whether in relation to an issue of shares in the CFC or otherwise), (b) funds or other assets which represent, or derive (directly or indirectly) from, any amounts included in the CFC's chargeable profits for any earlier accounting period in relation to which the CFC charge is charged, (c) funds or other assets which represent, or derive (directly or indirectly) from, any amounts which, by virtue of section 174 (transfer pricing: claims by disadvantaged person), are left out of account in determining the CFC's assumed total profits for the accounting period or any earlier accounting period, or (d) funds or other assets— (i) which represent, or derive (directly or indirectly) from, any funds or other assets received by the CFC (directly or indirectly) from a UK connected company, and (ii) which are not covered by paragraphs (a) to (c). (5) In subsection (4)(d)(i) the reference to funds or other assets received by the CFC does not include funds or other assets received— (a) in exchange for goods or services provided by the CFC, or (b) by way of a loan. (6) “UK connected company” means— (a) a UK resident company connected with the CFC, or (b) a non-UK resident company connected with the CFC acting through a UK permanent establishment.

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371ED Arrangements in lieu of dividends etc to UK resident companies etc

(1) Non-trading finance profits fall within this section so far as they arise from an arrangement ... in relation to which the following condition is met. (2) The condition is that— (a) the arrangement is made by the CFC (directly or indirectly)— (i) with a UK resident company connected with the CFC, or (ii) with a non-UK resident company connected with the CFC for the purposes of a UK permanent establishment of the non-UK resident company, and (b) it is reasonable to suppose— (i) that the arrangement is made as an alternative to the CFC paying dividends or making any other distribution to the other company (directly or indirectly), and (ii) that the main reason, or one of the main reasons, for that is a reason relating to a liability, or potential liability, of any person to tax or duty imposed under the law of any territory.

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371EE Leases to UK resident companies etc

(1) Non-trading finance profits fall within this section so far as they arise from a relevant finance lease in relation to which the following condition is met. (2) The condition is that— (a) the lease is made by the CFC (directly or indirectly)— (i) with a UK resident company connected with the CFC, or (ii) with a non-UK resident company connected with the CFC for the purposes of a UK permanent establishment of the non-UK resident company, and (b) it is reasonable to suppose— (i) that the lease is made as an alternative to the other company purchasing (directly or indirectly) the asset (“the relevant asset”) which is the subject of the lease or making (directly or indirectly) an arrangement which would fall within subsection (3) , and (ii) that the main reason, or one of the main reasons, for that is a reason relating to a liability, or potential liability, of any person to tax or duty imposed under the law of any territory. (3) An arrangement would fall within this subsection if— (a) the arrangement would meet one or both of the following requirements— (i) it would not be a relevant finance lease; (ii) it would not involve the CFC, and (b) under the arrangement the other company would (directly or indirectly) purchase rights to use the relevant asset.

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371FA The basic rule

(1) Take the following steps to determine the CFC's profits falling within this Chapter for the purposes of step 2 in section 371BB(1) (the CFC charge gateway). This is subject to regulations under section 371FD or 371FE. Step 1 Determine if, during the accounting period, the CFC's free capital exceeds what it is reasonable to suppose its free capital would be were it a company which is not the 51% subsidiary of any other company. If there is excess free capital, “the step 1 amount” is— the excess free capital, or if less, the CFC's free capital so far as deriving (directly or indirectly) from UK connected capital contributions. Step 2 This step applies only if the CFC carries on insurance business during the accounting period; if it does not, go straight to step 3. Determine if, during the accounting period when the CFC is carrying on insurance business, the CFC's free assets exceeds what it is reasonable to suppose its free assets would be were it a company which is not the 51% subsidiary of any other company. If there is excess free assets, “the step 2 amount” is— the excess free assets, or if less, the CFC's free assets so far as deriving (directly or indirectly) from UK connected capital contributions. Step 3 If no excesses are determined at steps 1 and 2, no profits fall within this Chapter. Otherwise, the profits falling within this Chapter are the CFC's trading finance profits so far as it is reasonable to suppose that those profits arise from the investment or other use of the step 1 amount or the step 2 amount (or both (2) For the purposes of step 1 in subsection (1) the CFC's “free capital” is the funding it has for its business so far as the funding does not give rise to debits which are brought into account in determining the CFC's non-trading finance profits or trading finance profits. (3) For the purposes of step 2 in subsection (1) the CFC's “free assets” is the amount by which the value of its assets exceeds its loan capital. (4) Subsections (2) and (3) are subject to sections 371FB and 371FC and subsection (3) is also subject to subsection (6). (5) Subsection (6) applies if— (a) the CFC, acting outside its insurance business, gives a guarantee against losses of an insurance business of another company which is connected with the CFC, (b) the guarantee is necessary for the purpose of meeting regulatory requirements applicable to the other company's insurance business, (c) in consequence of having given the guarantee, the CFC is required by regulatory requirements applicable to its insurance business to hold more assets than it would otherwise be required to hold, and (d) during the accounting period, the CFC holds assets solely for the purpose of meeting that requirement for more assets. (6) The value of the assets held by the CFC as mentioned in subsection (5)(d) is to be deducted from the CFC's free assets. (7) For the purposes of this section the “value” of an asset is the amount which it is reasonable to suppose the CFC would obtain for the transfer of all the CFC's rights in respect of the asset from a person not connected with the CFC.

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371FB Qualifying loan relationships

(1) Subsection (2) applies if, during the CFC's accounting period, the CFC is the ultimate debtor in relation to a qualifying loan relationship (within the meaning of Chapter 9) of another CFC (“the creditor CFC”). (2) E% of the principal outstanding during the CFC's accounting period on the loan which is the subject of the qualifying loan relationship is to be added to the CFC's free capital or free assets (as the case may be). (3) “E%” is given by the following formula— 100 % × EP P where— EP is the total amount of the profits of the qualifying loan relationship which are exempt, and P is the total amount of the profits of the qualifying loan relationship. (4) For the purposes of subsection (3)— (a) references to the profits of the qualifying loan relationship are to the profits of the qualifying loan relationship for accounting periods of the creditor CFC which fall wholly or partly in the CFC's accounting period, (b) the profits of the qualifying loan relationship for an accounting period of the creditor CFC are to be determined in accordance with Chapter 9, (c) the steps in subsection (5) are to be taken to determine the amount of the profits of the qualifying loan relationship for an accounting period of the creditor CFC which are “exempt”, and (d) the profits of the qualifying loan relationship for an accounting period of the creditor CFC which falls only partly in the CFC's accounting period, and the amount of those profits which are exempt, are to be apportioned between— (i) the part of the creditor CFC's accounting period which falls in the CFC's accounting period, and (ii) the part which does not, with only those profits, and the amount of exempt profits, apportioned to the part mentioned in sub-paragraph (i) being included in P or EP (as the case may be). (5) Here are the steps referred to in subsection (4)(c). The steps are to be taken separately in relation to each chargeable company which makes a claim under Chapter 9 in relation to the creditor CFC's accounting period. The amount of the profits of the qualifying loan relationship for the creditor CFC's accounting period which are exempt is the total of the amounts given by step 2. Step 1 Determine the amount of the profits of the qualifying loan relationship for the accounting period which, in the case of the chargeable company, are exempt under Chapter 9. Step 2 Multiply the amount determined at step 1 by P% (as defined in section 371BC(3), ignoring sections 371BG(3)(a) and 371BH(3)(b)).

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371FC Loans from foreign permanent establishments of UK resident companies

(1) Subsection (2) applies if— (a) there is a company (“C”) which has made an election under section 18A of CTA 2009 (exemption for profits or losses of foreign permanent establishments), (b) during a relevant accounting period of C which begins on or after 1 January 2013, C has a creditor relationship which, applying the assumptions set out in section 18H(3) of CTA 2009 in relation to C for the relevant accounting period, would be a qualifying loan relationship (within the meaning of Chapter 9 of this Part) of C in relation to which the CFC would be the ultimate debtor, (c) in the application of section 18H(2) of CTA 2009 for the relevant accounting period, C makes a claim under Chapter 9 of this Part (as applied by section 18H(2)), and (d) the relevant accounting period falls wholly or partly in the CFC's accounting period. (2) 75% of the principal outstanding during the CFC's accounting period on the loan which is the subject of the qualifying loan relationship is to be added to the CFC's free capital or free assets (as the case may be). (3) Terms used in this section which are defined in section 18A of CTA 2009 have the meaning given by that section.

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371FD Exclusion: banking business

(1) The HMRC Commissioners may by regulations provide that, if specified conditions are met, step 3 in section 371FA(1) is not to apply in relation to the CFC's trading finance profits so far as they arise from banking business, or banking business of a specified description, carried on by the CFC. (2) Regulations under subsection (1) may (in particular) make provision by reference to— (a) the territory in which a CFC is resident or any territory in which its banking business is regulated or carried on, or (b) the regulatory requirements imposed from time to time in any territory in relation to banking business.

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371FE Exclusion: insurance business

(1) The HMRC Commissioners may by regulations provide that, if specified conditions are met, step 3 in section 371FA(1) is not to apply in relation to the CFC's trading finance profits so far as they arise from insurance business, or insurance business of a specified description, carried on by the CFC. (2) In subsection (1) “insurance business” does not include insurance business so far as consisting of the effecting or carrying out of contracts of insurance covered by section 371GA(2) (UK insurance contracts), including the investment of premiums received from such contracts. (3) Regulations under subsection (1) may (in particular) make provision by reference to— (a) the territory in which a CFC is resident or any territory in which its insurance business is regulated or carried on, or (b) the regulatory requirements imposed from time to time in any territory in relation to insurance business.

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371GA The basic rule

(1) The CFC's profits falling within this Chapter for the purposes of step 2 in section 371BB(1) (the CFC charge gateway) are any amounts included in its assumed total profits so far as they— (a) arise from the CFC's insurance business, (b) fall within subsection (2), and (c) fall within subsection (7) where applicable. (2) An amount falls within this subsection if it derives (directly or indirectly) from— (a) a contract of insurance which is entered into with— (i) a UK resident company connected with the CFC, or (ii) a non-UK resident company connected with the CFC acting through a UK permanent establishment, or (b) a contract of insurance which— (i) is entered into with a UK resident person, and (ii) is linked (directly or indirectly) to the provision of goods or services to the UK resident person by a UK connected company. (3) In subsection (2)(b)(ii)— “services” does not include services provided as part of insurance business, and “UK connected company” means— a UK resident company connected with the CFC, or a non-UK resident company connected with the CFC acting through a UK permanent establishment. (4) Subsection (2)(a)(i) does not cover a premium paid under a contract of insurance if— (a) the UK resident company has made an election under section 18A of CTA 2009 (exemption for profits or losses of foreign permanent establishments), and (b) the premium is wholly brought into account for the purpose of determining any exemption adjustment in relation to the company under that section. (5) Subsection (2)(a) covers a contract of reinsurance only so far as the original contract of insurance would fall within subsection (2)(a). (6) Subsection (7) applies in relation to an amount if— (a) the CFC is resident in an EEA state for the accounting period, and (b) the amount does not arise from the activities of a permanent establishment which the CFC has in a territory which is not an EEA state. (7) An amount falls within this subsection so far as it derives (directly or indirectly) from a contract of insurance if— (a) the insured has no significant UK non-tax reason for entering into the contract of insurance, or (b) if the contract of insurance is a contract of reinsurance, the original insured has no significant UK non-tax reason for entering into the original contract of insurance. (8) “UK non-tax reason” means a reason other than one relating to a liability, or potential liability, of any person to tax or duty imposed under the law of the United Kingdom. (9) In this section “original contract of insurance”, in relation to a contract of reinsurance which is one in a chain of contracts of reinsurance, means the original contract of insurance reinsured by the first contract in the chain; and in subsection (7)(b) the reference to the original insured is to be read accordingly.

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371HA The basic rule

(1) The CFC's profits falling within this Chapter for the purposes of step 2 in section 371BB(1) (the CFC charge gateway) are any amounts included in its assumed total profits which are not also included in the CFC's relevant profits amount. (2) The CFC's “relevant profits amount” is what the relevant profits amount would be for the purposes of Chapter 3A of Part 2 of CTA 2009 (see section 18A(6) of that Act) in relation to the CFC were that amount to be determined as if— (a) the CFC were a permanent establishment in a territory outside the United Kingdom of the UK resident company mentioned in section 371CG(2)(b) or the UK resident bank mentioned in section 371CG(3), and (b) the CFC's accounting period were a relevant accounting period of that UK resident company or UK resident bank for the purposes of that Chapter.

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371IA The basic rule

(1) This Chapter applies if— (a) apart from this Chapter, Chapter 5 (non-trading finance profits) would apply for a CFC's accounting period, (b) the CFC's non-trading finance profits include qualifying loan relationship profits, and (c) the business premises condition set out in section 371DG is met. (2) A chargeable company (“company C”) in relation to the accounting period may make a claim to an officer of Revenue and Customs for step 2 in section 371BB(1) (the CFC charge gateway) to be taken, in the case of company C only, subject to this Chapter. (3) If company C makes a claim, in the case of company C only, the CFC's qualifying loan relationship profits pass through the CFC charge gateway so far as (and only so far as) they are not exempt under this Chapter. (4) The CFC's “qualifying loan relationship profits” are so much of the profits of all its qualifying loan relationships taken together as are non-trading finance profits which— (a) fall within section 371EC (capital investment from the UK), and (b) do not fall within section 371EB (UK activities). (5) The extent to which those profits are “exempt” is to be determined— (a) firstly, by applying either section 371IB or section 371ID to each of the CFC's qualifying loan relationships, and (b) secondly, by applying section 371IE (if relevant). (6) Section 371IF sets out how to determine the profits of a qualifying loan relationship. (7) Sections 371IG to 371II define “qualifying loan relationship” etc. (8) Section 371IJ contains provision about claims under this Chapter. (9) In this Chapter references to the CFC's non-trading finance profits are to those profits excluding any profits— (a) falling within section 371CB(3) or (4) or Chapter 8 (solo consolidation), or (b) arising from a relevant finance lease. (10) In this Chapter— (a) “loan relationship” has the meaning given by section 302(1) of CTA 2009 (and does not include anything which, although not falling within section 302(1), is treated for any purpose as if it were a loan relationship), and (b) other terms used which are defined in Part 5 of CTA 2009 are to be read accordingly. (11) See section 371CB(8) which deals with the interaction between this Chapter and section 371CB and Chapter 5 in the case of a chargeable company which makes a claim under this Chapter.

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371IB Loans funded out of qualifying resources

(1) This section applies to a qualifying loan relationship if company C's claim under this Chapter states that this section is to apply to the qualifying loan relationship. (2) X% of the profits of the qualifying loan relationship are exempt if company C's claim establishes— (a) that, at all times during the relevant period, at least X% of the principal outstanding on the relevant loan (as that may vary from time to time during the relevant period) is funded by the CFC wholly out of qualifying resources, and (b) that the ultimate debtor in relation to the qualifying loan relationship (see section 371IG(2) to (7)) is resident at all times during the relevant period in one territory only and that its territory of residence does not change at any time during the relevant period. (3) “X%” is the percentage specified in company C's claim for the purposes of this section in relation to the qualifying loan relationship (which may be 100%). (4) “The relevant period” means— (a) the accounting period, or (b) if for any part of the accounting period no principal is outstanding on the relevant loan, the part of the accounting period during which there is principal outstanding. (5) “The relevant loan” means the loan which is the subject of the qualifying loan relationship. (6) “Qualifying resources” means— (a) profits of the CFC's business so far as it consists of the making of loans to relevant members of the CFC group which are used solely for the purposes of the business of the CFC group in the relevant territory, or (b) funds or other assets received by the CFC in relation to shares held by the CFC in, or issued by the CFC to, members of the CFC group. (7) Funds or other assets received by the CFC fall within subsection (6)(b) only so far as they derive (directly or indirectly) from— (a) profits of the business of the CFC group in the relevant territory, (b) the qualifying value of relevant pre-acquisition funds or other assets (see section 371IC), or (c) an issue of shares which meets the following requirements— (i) the shares are shares in a member of the CFC group (“the parent member”) which is not the 75% subsidiary of any company, (ii) the shares are ordinary shares which are not redeemable, and (iii) the shares are issued to persons who are not members of the CFC group. (8) Subsection (9) applies if the qualifying loan relationship is made under, or is otherwise connected (directly or indirectly) with, an arrangement under which a member of the CFC group incurs a debt in the United Kingdom to— (a) a non-UK resident person, or (b) a UK resident person who is not a member of the CFC group. (9) It is to be assumed for the purposes of subsection (2) that, at all times during the relevant period, the amount of funds or other assets— (a) out of which the principal outstanding on the relevant loan is funded by the CFC, and (b) which are not qualifying resources, is no less than the amount of the debt mentioned in subsection (8). (9A) Subsection (9) does not apply if the debt incurred by the member of the CFC group as mentioned in subsection (8) represents the principal on a loan made to the member to which subsection (9B) or (9D) applies. (9B) This subsection applies to a loan if the member repays it within 48 hours of the loan being made. (9C) But subsection (9B) does not apply to a loan if the repayment of the loan within the 48 hours occurs under, or is connected (directly or indirectly) with, an arrangement the main purpose, or one of the main purposes, of which is to ensure that subsection (9) does not apply because of— (a) the loan, or (b) any other debt which a member of the CFC group incurs (or is expected to incur) in the United Kingdom. (9D) This subsection applies to a loan if— (a) there is an issue of shares which meets the requirements of subsection (7)(c)(i) to (iii), (b) the loan was made before the issue of shares but with the expectation that it would be repaid by the member out of funds deriving (directly or indirectly) from the issue of shares, (c) the loan is repaid by the member out of such funds within the period of 6 months beginning with the day on which the loan was made, and (d) the loan— (i) was made by a person who was not a member of the CFC group, and (ii) was not made (wholly or partly nor directly or indirectly) out of funds or other assets provided by a member of the CFC group. (10) For the purposes of this section and section 371IC— (a) subject to subsections (11) and (12), “the CFC group”, as at any time, means the CFC taken together with the companies with which it is connected at that time, (b) a member of the CFC group is “relevant” if it is resident in the relevant territory and no other territory, (c) “the relevant territory” means the territory of residence of the ultimate debtor mentioned in subsection (2)(b), (d) references to the business of the CFC group in the relevant territory do not include the making of loans to persons resident outside the relevant territory, (e) references to the profits of the business of the CFC group in the relevant territory do not include— (i) profits arising (directly or indirectly) from funds or other assets received by relevant members of the CFC group in relation to shares held by them in members of the CFC group which are not relevant members, or (ii) so far as not covered by sub-paragraph (i), profits arising (directly or indirectly) from the business of the CFC group in any territory outside the relevant territory, and (f) section 931U of CTA 2009 (definitions of “ordinary share” and “redeemable”) applies as it applies for the purposes of Part 9A of CTA 2009 (company distributions). (11) If the CFC is controlled by one UK resident company only (“the controller”), in relation to any time before the CFC came to be controlled by the controller, except in subsection (6), references to the CFC group include references to the controller taken together with any companies with which it is connected at that time. (12) If the CFC is controlled by two or more UK resident companies which are all connected with each other (“the controllers”), in relation to any time— (a) before which the CFC came to be controlled by the controllers, and (b) at which the controllers (or those of the controllers which exist at that time) are all connected with each other, except in subsection (6), references to the CFC group include references to the controllers (or those of the controllers which exist) taken together with any other companies with which they are all connected at that time.

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371IC What is the “qualifying value” of “relevant pre-acquisition funds or other assets”?

(1) This section applies for the purposes of section 371IB(7)(b). (2) It applies if— (a) a member of the CFC group acquires shares in a company (“the target company”) from persons who are not members of that group (“the unconnected persons”), (b) in consideration for the acquisition of the shares, a member of the CFC group (“the parent member”) which is not the 51% subsidiary of any company issues shares to the unconnected persons, and (c) the value of the consideration given for the acquisition of the shares by the parent member and any other members of the CFC group represents wholly or partly the value or a part of the value of any funds or other assets held by the target company. (3) Those funds or other assets are “relevant pre-acquisition funds or other assets” and, subject to what follows, their value or the part of their value represented by the value of the consideration is their “qualifying value”. (4) The qualifying value is to be reduced by Y% if one or both of the following paragraphs applies— (a) the issue of shares by the parent member to the unconnected persons represents only part of the consideration given for the acquisition of the shares in the target company; (b) in connection with the acquisition of the shares in the target company, an extraordinary distribution is made to persons holding shares in the parent member. (5) “Y%” is given by the following formula— 100 % × B A + B where— A is the value of the consideration which is in the form of the issue of shares by the parent member to the unconnected persons, and B is, as the case may be— the value of the consideration which is not in the form of the issue of shares by the parent member to the unconnected persons, the value of the extraordinary distribution, or the total of the values given by paragraphs (a) and (b).

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371ID The 75% exemption

(1) This section applies to a qualifying loan relationship if section 371IB does not apply to the qualifying loan relationship. (2) 75% of the profits of the qualifying loan relationship are exempt.

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371IE The “matched interest profits” exemption

(1) This section applies if— (a) there are profits of qualifying loan relationships which are not exempt after sections 371IB and 371ID have been applied to each qualifying loan relationship, (b) the relevant corporation tax accounting period (as defined in section 371BC(3)) of company C is a relevant accounting period of it in relation to a period of account of a worldwide group, (c) the CFC's accounting period ends in that period of account, and (d) apart from this section, the profits mentioned in paragraph (a) would be included in the chargeable profits of the CFC. (2) In this section “the matched interest profits” means so much of the profits mentioned in subsection (1)(a) as remain after excluded credits and excluded debits are left out of account. (3) If the aggregate net tax-interest expense of the group for the period is nil, all of the matched interest profits are exempt. (4) Otherwise, there is a more limited exemption if the relevant proportion of the matched interest profits apportioned to C or other relevant chargeable companies exceeds the aggregate net tax-interest expense of the group for the period. (5) For the purposes of this section “the relevant proportion of the matched interest profits apportioned to C or other relevant chargeable companies” is determined as follows. Step 1 For each relevant chargeable company (including C) determine the percentage (P%) of the CFC's chargeable profits that are apportioned to the company under step 5 of section 371BC(1). Step 2 For each relevant chargeable company (including C) multiply P% by the matched interest profits. Step 3 The sum of the amounts for each company found under step 2 is “the relevant proportion of the matched interest profits apportioned to C or other relevant chargeable companies”. (6) For the purposes of this section a company is a relevant chargeable company if the relevant corporation tax accounting period of the company is a relevant accounting period in relation to the period of account of the group. (7) The limited exemption is given effect by treating the matched interest profits as equal to the amount found by multiplying the amount that they would otherwise be by— E RPMIP where— E is the amount of the excess mentioned in subsection (4), and RPMIP is the relevant proportion of the matched interest profits apportioned to C or other relevant chargeable companies. (8) For the purposes of this section the aggregate net tax-interest expense of a worldwide group for a period of account is determined in accordance with Part 10 (corporate interest restriction) but without regard to debits, credits or other amounts arising from— (a) banking business carried on by a company within the charge to corporation tax, or (b) insurance business carried on by a company within the charge to corporation tax. (9) For the purposes of this section— “excluded credit” has the meaning given by section 386(3), “excluded debit” has the meaning given by section 383(3), and “period of account”, “relevant accounting period” and “worldwide group” have the same meanings as in Part 10.

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371IF Determining the profits of a qualifying loan relationship

Take the following steps to determine the profits of a qualifying loan relationship for the purposes of this Chapter. Step 1 Determine the credits from the qualifying loan relationship which are brought into account in determining the CFC's non-trading finance profits. The result is “the step 1 credits”. Step 2 Determine the credits and debits which are brought into account in determining the CFC's non-trading finance profits so far as they— are from any derivative contract or other arrangement (other than a qualifying loan relationship) entered into by the CFC as a hedge of risk in connection with the qualifying loan relationship, and are attributable to the hedge of risk. If the credits exceed the debits add the excess to the step 1 credits and if the debits exceed the credits subtract the deficit from the step 1 credits. The result is “the step 2 credits”. Step 3 Allocate to the qualifying loan relationship a just and reasonable proportion of the credits from the CFC's relevant debtor relationships which are brought into account in determining the CFC's non-trading finance profits (so far as not reflected in the step 2 credits). Add the credits to the step 2 credits. The result is “the step 3 credits”. A debtor relationship of the CFC is “relevant” if the loan which is the subject of it is used by the CFC to fund the loan which is the subject of the qualifying loan relationship Step 4 Allocate to the qualifying loan relationship a just and reasonable proportion of the credits and debits which are brought into account in determining the CFC's non-trading finance profits so far as they— are from any derivative contract or other arrangement (other than a qualifying loan relationship or a relevant debtor relationship) entered into by the CFC as a hedge of risk in connection with a relevant debtor relationship, and are attributable to the hedge of risk. If the credits exceed the debits add the excess to the step 3 credits and if the debits exceed the credits subtract the deficit from the step 3 credits. The result is “the step 4 credits”. Step 5 Allocate to the qualifying loan relationship a just and reasonable proportion of— the debits from the CFC's loan relationships which are brought into account in determining the CFC's non-trading finance profits (so far as not reflected in the step 4 credits), and any amounts set off under Chapter 16 or Chapter 16A of Part 5 of CTA 2009 (non-trading deficits) against amounts which, apart from the set off, would be included in the CFC's non-trading finance profits. Reduce the step 4 credits accordingly to give the profits of the qualifying loan relationship.

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371IG What is a “qualifying loan relationship”?

(1) In this Chapter “qualifying loan relationship” means a creditor relationship of the CFC— (a) the ultimate debtor in relation to which is a qualifying company, and (b) which is not prevented from being a qualifying loan relationship by section 371IH. (2) In this Chapter “the ultimate debtor”, in relation to a creditor relationship of the CFC, means the debtor in relation to the creditor relationship. This is subject to what follows. (3) Subsection (4) or (5) (as the case may be) applies if— (a) there is a loan (“loan A”) which is the subject of a creditor relationship of the CFC, (b) loan A, or a part of loan A, is made and used to fund (directly or indirectly) another loan (“loan B”) to a person (“P”), and (c) loan B, or a part of loan B, is not made and used to fund (directly or indirectly) a further loan to any person. (4) If all of loan A is made and used to fund (directly or indirectly) loan B, the ultimate debtor in relation to the CFC's creditor relationship mentioned in subsection (3)(a) is P. (5) If only part of loan A is made and used to fund (directly or indirectly) loan B— (a) that part of loan A is to be treated for the purposes of this Chapter as a separate loan giving rise to a separate creditor relationship of the CFC, and (b) the ultimate debtor in relation to that separate creditor relationship is P. (6) If the requirement of subsection (3)(c) is met in relation to a part of loan B only, in subsections (4) and (5) references to loan B are to be read as references to that part of loan B only. (7) But neither subsection (4) nor subsection (5) applies if— (a) the debtor (“D”) in relation to the CFC's creditor relationship is a qualifying company the main business of which is banking business or insurance business, (b) the use of loan A, or the part of loan A, as mentioned in subsection (3)(b) occurs in the ordinary course of D's banking business or insurance business (as the case may be), and (c) P is not a UK resident qualifying company. (8) In this section “qualifying company” means a company which— (a) is connected with the CFC, and (b) is controlled by the UK resident person or persons who control the CFC.

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371IH Exclusions from definition of “qualifying loan relationship”

(1) If the ultimate debtor in relation to a creditor relationship of the CFC is a non-UK resident company, the creditor relationship cannot be a qualifying loan relationship so long as some or all of the company's debits— (a) are being brought into account for the purposes of Chapter 4 of Part 2 of CTA 2009 (UK permanent establishments of non-UK resident companies) in determining the company's profits which are attributable to a UK permanent establishment, or (b) are being brought into account for the purposes of Part 3 of ITTOIA 2005 (property income) in determining the company's profits of a UK property business. (2) If the ultimate debtor in relation to a creditor relationship of the CFC is a UK resident company, the creditor relationship can be a qualifying loan relationship only so long as— (a) an election under section 18A of CTA 2009 (exemption for profits or losses of foreign permanent establishments) is in effect in relation to the company, and (b) all the company's debits are being brought into account for the purpose of determining exemption adjustments in relation to the company under that section. (3) If the ultimate debtor in relation to a creditor relationship of the CFC is another CFC, the creditor relationship cannot be a qualifying loan relationship so long as— (a) some or all of the other CFC's debits are relevant to the application of Chapters 3 to 8 or Chapter 12 in the case of the other CFC, and (b) as a result of that, the CFC charge is not being charged in relation to the other CFC's accounting periods or any sums charged are less than what they would otherwise have been. (4) In subsections (1) to (3) references to the debits of the company which is the ultimate debtor in relation to a creditor relationship of the CFC are references to— (a) the ultimate debtor's debits in relation to the loan which is the subject of the CFC's creditor relationship, or (b) if the ultimate debtor is determined in accordance with section 371IG(4) or (5), the ultimate debtor's debits in relation to loan B. (5) A creditor relationship of the CFC cannot be a qualifying loan relationship if it is, or is connected (directly or indirectly) to, an arrangement the main purpose, or one of the main purposes, of which is for the ultimate debtor in relation to the creditor relationship to provide (directly or indirectly) funding for— (a) a loan to another person, or (b) so far as not covered by paragraph (a), an arrangement intended to produce for any person a return in relation to any amount which it is reasonable to suppose would be a return by reference to the time value of that amount of money. (6) Subsection (5) does not apply if— (a) the main business of the ultimate debtor is banking business or insurance business, and (b) the funding for the loan or arrangement would be provided in the ordinary course of the ultimate debtor's banking business or insurance business (as the case may be). (7) A creditor relationship of the CFC cannot be a qualifying loan relationship if— (a) the main business of the ultimate debtor in relation to the creditor relationship is banking business or insurance business, and (b) the creditor relationship is, or is connected (directly or indirectly) to, an arrangement the main purpose, or one of the main purposes, of which is for the ultimate debtor to provide (directly or indirectly) funding for a loan or arrangement as mentioned in subsection (5)(a) or (b) in order to obtain a tax advantage for the ultimate debtor. (8) A creditor relationship of the CFC cannot be a qualifying loan relationship if the loan which is the subject of the creditor relationship is made to any extent (other than a negligible one) out of funds received by the CFC (directly or indirectly)— (a) from a relevant UK connected company other than by way of a loan, or (b) as a result of an arrangement which gives rise to a deduction in the calculation of the profits of a trade of a relevant UK connected company (apart from the ultimate debtor) for the purposes of Part 3 of CTA 2009 (trading income). (9) For the purposes of subsection (8) a company is “relevant UK connected” if— (a) the company is a UK resident company connected with the CFC, (b) the company's main business is banking business or insurance business, and (c) the company's banking business or insurance business (as the case may be) is a trade. (9A) Subsection (9B) applies to a creditor relationship of a CFC if— (a) a creditor relationship (“the UK creditor relationship”) of a UK connected company is made where the debtor is a non-UK resident company connected with the UK connected company, (b) subsequently, an arrangement (“the relevant arrangement”) is made directly or indirectly in connection with the UK creditor relationship, and (c) the main purpose, or one of the main purposes, of the relevant arrangement is to secure that— (i) the relevant UK credits of a UK connected company for a corporation tax accounting period of the company are lower than they would be if the relevant arrangement had not been made, or (ii) the relevant UK debits of a UK connected company for a corporation tax accounting period of the company are greater than they would be if the relevant arrangement had not been made. (9B) The CFC's creditor relationship cannot be a qualifying loan relationship if it is, or is connected (directly or indirectly) to, the relevant arrangement. (9C) Subsection (9D) applies for the purposes of subsection (9A)(c)(i) and (ii) in determining what the relevant UK credits or debits of a UK connected company for a corporation tax accounting period would be if the relevant arrangement had not been made. (9D) Assume that, at all times after the relevant time, the UK creditor relationship remains in place on the same terms as it had at the relevant time. (9E) In subsections (9A) to (9D)— “corporation tax accounting period” means an accounting period for corporation tax purposes, “the relevant time” means the time immediately before— the time when the relevant arrangement is made, or if earlier, the time when the UK creditor relationship ends, “relevant UK credits”, in relation to a UK connected company, means credits which the company has under Part 5 or 7 of CTA 2009, “relevant UK debits”, in relation to a UK connected company, means debits which the company has under Part 5 or 7 of CTA 2009, and “UK connected company” means a UK resident company which— is connected with the CFC, or was connected with a company with which the CFC is connected. (10) A creditor relationship of the CFC cannot be a qualifying loan relationship if— (a) the CFC receives relevant UK funds or other assets for the purpose of funding the loan which is the subject of the CFC's creditor relationship, (b) the provision of the relevant UK funds or other assets is itself funded (wholly or partly and directly or indirectly) by a loan made to a UK connected company by— (i) a non-UK resident person, or (ii) a UK resident person who is not connected with the CFC, (c) the relevant loan is used to any extent (other than a negligible one) to repay wholly or partly another loan made to the ultimate debtor by a person not connected with the ultimate debtor, and (d) the events mentioned in paragraphs (a) to (c) take place under, or are otherwise connected (directly or indirectly) with, an arrangement the main purpose, or one of the main purposes, of which is to obtain a tax advantage for any person. (11) In subsection (10)— (a) “relevant UK funds or other assets” and “UK connected company” have the same meaning as in section 371EC, and (b) in paragraph (c) “the relevant loan” means— (i) the loan which is the subject of the CFC's creditor relationship, or (ii) if the ultimate debtor is determined in accordance with section 371IG(4) or (5), loan B. (12) In subsections (4)(b) and (11)(b)(ii) references to loan B do not include any part of loan B— (a) which loan A is not made and used to fund, or (b) in relation to which the requirement of section 371IG(3)(c) is not met.

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371II Power to amend definitions

The HMRC Commissioners may by regulations amend this Chapter— (a) so as to amend the definition of “qualifying resources” for the purposes of section 371IB, or (b) so as to amend the definition of “qualifying loan relationship” or “ultimate debtor” for the purposes of this Chapter.

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371IJ Claims

(1) A claim under this Chapter must be made by being included in company C's company tax return for the relevant corporation tax accounting period (as defined in section 371BC(3)). (2) The claim may be included in the return originally made or by amendment. (3) The claim may be amended or withdrawn by company C only by amending the return. (4) A claim under this Chapter may be made, amended or withdrawn at any time up to whichever is the last of the following dates— (a) the first anniversary of the filing date for company C's company tax return for the relevant corporation tax accounting period under paragraph 14 of Schedule 18 to FA 1998; (b) if notice of enquiry is given into that return under paragraph 24 of that Schedule, 30 days after the enquiry is completed so far as relating to the matters to which the claim relates; (c) if after such an enquiry an officer of Revenue and Customs amends the return under paragraph 34(2) of that Schedule, 30 days after notice of the amendment is issued; (d) if an appeal is brought against such an amendment, 30 days after the date on which the appeal is finally determined. (5) A claim under this Chapter may be made, amended or withdrawn at a later time if an officer of Revenue and Customs allows it. (6) In any event, if after a claim under this Chapter is made there is a change of circumstances affecting the tested income amount or the aggregate net tax-interest expense that is mentioned in section 371IE, the claim may be amended at any time within the period of 12 months after the change of circumstances for the purpose of taking account of the change of circumstances. (7) The time limits otherwise applicable to amendment of a company tax return do not apply to an amendment to the extent that it makes, amends or withdraws a claim under this Chapter within the time allowed by or under this section. (8) In subsection (4) references to an enquiry into a company tax return do not include an enquiry restricted to a previous amendment making, amending or withdrawing a claim under this Chapter. (9) An enquiry is so restricted if— (a) the scope of the enquiry is limited as mentioned in paragraph 25(2) of Schedule 18 to FA 1998, and (b) the amendment giving rise to the enquiry consisted of the making, amending or withdrawing of a claim under this Chapter.

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371JA Introduction to Chapter

(1) This Chapter sets out an exemption called “the exempt period exemption” for the purposes of section 371BA(2)(b). (2) Section 371JE also provides for adjustments of profits which would otherwise pass through the CFC charge gateway (see section 371BB(2)(b)) linked to the exempt period exemption.

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371JB The basic rule

(1) The exempt period exemption applies for a CFC's accounting period if— (a) the accounting period ends during an exempt period of the CFC (see sections 371JC and 371JD), (b) the subsequent period condition is met, and (c) the chargeable company condition is met. (2) The subsequent period condition is met if— (a) the CFC does not cease to be a CFC before having at least one accounting period which begins after the end of the exempt period, and (b) section 371BC (charging the CFC charge) does not apply in relation to the CFC's first accounting period to begin after the end of the exempt period (see section 371BA(2)). (3) The chargeable company condition is met if, at all times during the relevant period— (a) the charging condition in section 371JC is met, and (b) each company which would be a chargeable company for the purposes of that condition is an original chargeable company or is connected with an original chargeable company. (4) In subsection (3)— “original chargeable company” means a company which, for the purposes of the charging condition in section 371JC, would be a chargeable company at the beginning of the exempt period, and “the relevant period” means the period which— begins immediately after the beginning of the exempt period, and ends at the end of the CFC's first accounting period to begin after the end of the exempt period. (5) This section is subject to section 371JF (anti-avoidance).

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371JC When does an exempt period begin?

(1) An exempt period of a CFC begins at any time (“the relevant time”) during an accounting period of the CFC if— (a) the initial condition is met, (b) the charging condition is met at the relevant time, and (c) at no time during the relevant preceding period (if there is one) is the charging condition met. (2) The initial condition is met if— (a) immediately before the relevant time, the company (“C”) which is the CFC is carrying on a business, or (b) if the relevant time is the time at which C is incorporated or formed, C is incorporated or formed by one or more persons for the purpose of controlling one or more companies in circumstances where it is expected that an exempt period will begin in relation to one or more of those companies when C begins to control the company or companies. (3) To determine if the charging condition is met at any time, assume— (a) that the company which is the CFC is a CFC at the time in question if that is not otherwise the case, (b) that the time in question is itself an accounting period of the CFC, and (c) that section 371BC (charging the CFC charge) applies in relation to the assumed accounting period. (4) The charging condition is met at the time in question if, as a result of steps 1, 3 and 4 in section 371BC(1), there would be one or more chargeable companies in relation to the assumed accounting period. (5) “The relevant preceding period” means the period of 12 months ending immediately before the relevant time, excluding any part of that period during which the company which is the CFC does not exist.

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371JD How long is an exempt period?

(1) Subject to what follows, an exempt period of a CFC lasts 12 months. (2) Subsection (3) applies if a notice is given to an officer of Revenue and Customs requesting that the length of an exempt period of a CFC be extended (or further extended). (3) An officer of Revenue and Customs may extend (or further extend) the length of the exempt period. (4) A notice under subsection (2) must be given no later than the end of the exempt period (as it stands at the time the notice is given). (5) A notice under subsection (2) may be given only by a company which, at the time the notice is given, would be a chargeable company for the purposes of the charging condition in section 371JC.

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371JE Adjustment of profits passing through the CFC charge gateway

(1) This section applies for a CFC's accounting period if— (a) the accounting period begins, but does not end, during an exempt period of the CFC, and (b) the subsequent period condition and the chargeable company condition in section 371JB are both met. (2) The CFC's assumed total profits which would otherwise pass through the CFC charge gateway are to be adjusted to ensure that no profits which arise in the exempt period, as determined on a just and reasonable basis, pass through the CFC charge gateway. (3) This section is subject to section 371JF (anti-avoidance).

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371JF Anti-avoidance

(1) The exempt period exemption does not apply for a CFC's accounting period (“the relevant accounting period”) if condition A or B is met. (2) Condition A is that— (a) an arrangement is entered into at any time, (b) the main purpose, or one of the main purposes, of the arrangement is to secure a tax advantage for any person, (c) the arrangement is linked to the exempt period exemption applying or being expected to apply (apart from this section)— (i) for the relevant accounting period, or (ii) for that period and one or more other accounting periods of the CFC, and (d) the arrangement involves one or both of the following— (i) the CFC holding assets which give rise to non-trading finance profits or trading finance profits of the CFC, or (ii) the CFC holding intellectual property which gives rise to any income of the CFC. (3) Condition B is that— (a) an arrangement is entered into at any time, (b) in consequence of the arrangement, the length of any accounting period of the CFC is less than 12 months, and (c) the main purpose, or one of the main purposes, of the arrangement is to secure that the exempt period exemption applies— (i) for the relevant accounting period, or (ii) for that period and one or more other accounting periods of the CFC. (4) In this section references to the exempt period exemption include references to section 371JE.

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371JG Amendment of company tax returns

(1) This section applies in relation to a company's company tax return for a corporation tax accounting period if an exempt period of a CFC falls (wholly or partly) in the corporation tax accounting period. (2) Any amendment of the return which relates to the application (or non-application) of the exempt period exemption or section 371JE for an accounting period of the CFC may be made by the company at any time no later than 12 months after the relevant filing date. (3) “The relevant filing date” means the date which is the filing date under paragraph 14 of Schedule 18 to FA 1998 for the company's company tax return for its corporation tax accounting period in which ends the CFC's first accounting period to begin after the end of the exempt period. (4) “Corporation tax accounting period” means an accounting period for corporation tax purposes.

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371KA Introduction to Chapter

This Chapter sets out an exemption called “the excluded territories exemption” for the purposes of section 371BA(2)(b).

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371KB The basic rule

(1) The excluded territories exemption applies for a CFC's accounting period if— (a) the CFC is resident (see section 371KC) in an excluded territory for the accounting period, (b) the total of the following amounts is no more than the threshold amount for the accounting period (see section 371KD)— (i) the CFC's category A income (if any) for the accounting period (see sections 371KE and 371KF), (ii) the CFC's category B income (if any) for the accounting period (see section 371KG), (iii) the CFC's category C income (if any) for the accounting period (see section 371KH), and (iv) the CFC's category D income (if any) for the accounting period (see section 371KI), (c) the IP condition is met (see section 371KJ), and (d) the CFC is not, at any time during the accounting period, involved in an arrangement the main purpose, or one of the main purposes, of which is to obtain a tax advantage for any person. (2) In this Chapter “excluded territory” means a territory specified as such in regulations made by the HMRC Commissioners. (3) The HMRC Commissioners may also by regulations, in relation to CFCs resident in a specified excluded territory or to other specified cases, do one or more of the following— (a) provide that one or both of the requirements set out in subsection (1)(b) and (c) does not have to be met in order for the excluded territories exemption to apply; (b) modify one or both of those requirements, including by modifying any provision of this Chapter mentioned in subsection (1)(b) or (c); (c) specify further requirements which must be met in order for the excluded territories exemption to apply. (4) If an amount is included in more than one of the categories of income mentioned in subsection (1)(b)(i) to (iv), the amount is to be counted only once in determining if the threshold amount is exceeded.

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