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HMRC internal manual

International Manual

HM Revenue & Customs
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Controlled Foreign Companies: The CFC Charge Gateway Chapter 3 - Determining which (if any) of Chapters 4 to 8 apply: Does Chapter 5 apply?: What are non-trading finance profits?

A more detailed description of non-trading finance profits can be found in INTM248400. A summary relevant for this chapter is provided below.

Non-trading finance profits include any profits that are not trading profits which a company would have in respect of its loan relationships if it were chargeable to corporation tax, or any amounts that would be chargeable company distributions. Non-trading finance profits therefore include but are not limited to:

  • Interest income on loans not made for a trade purpose;
  • Related transactions i.e. disposals or acquisition (in whole or in part) of rights or liabilities under a loan relationship;
  • Exchange gains and losses arising on loan relationships;
  • Repos and stock lending;
  • Relevant non-lending relationships;
  • Disguised interest;
  • Derivative contracts and related transactions;
  • Non-trading finance profits arising on relevant finance leases and
  • Any amounts that would be chargeable to corporation tax under Part 9A of CTA 2009 (company distributions).


In several territories mandatorily redeemable preference shares are regarded as debt for tax purposes and distributions in respect of them may be taxable as a result of the operation of CTA09/S931D(c). Such distributions will be non-trading finance profits for the purposes of Chapter 3.

Relevant finance lease

Relevant finance lease is further defined in INTM248600 but is defined as an arrangement where either:

  • An asset is leased or otherwise made available by a person (‘the lessor’) to another person, and in accordance with generally accepted accounting practice, it falls (or would fall) to be treated in the accounts of the lessor, or of a person connected with the lessor, as a finance lease or a loan, or
  • A hire-purchase, conditional sale or other arrangement relating to an asset which does not fall within the above but is of a similar character to an arrangement which would fall within it.

Non-trading finance profits - finance lease income

Finance lease profits are included within the definition of non-trading finance profits because in substance some forms of leasing are very similar to secured loan financing.

In the main these profits will normally be regarded as trading finance profits and should therefore fall within the scope of Chapter 6. In some cases however, profits from leasing may be treated as non-trading. Although this is likely to apply in exceptional cases, the rules allow non-trading leasing income to fall within the scope of Chapter 5.

Non-trading finance profits - group treasury companies

It is not uncommon for a multinational group to centralise its finance function in one or more large and complex group finance companies which might have a level of organisation sufficient for part or all of their activity to constitute a trade of a financial nature. Profit from that trade would fall to be considered under Chapter 6 rather than Chapters 3, 5 and 9 where there not specific rules to prevent this from happening. Whether or not the activity constitutes a trade will be a question of fact. However such a company will be effectively operating in a similar manner to a retail bank with a high volume of transactions, a large number of incomings and outgoings, little structural lending activity and a small profit margin.

It is intended that a treasury company that has a mixture of structural lending, non- structural lending and other treasury activity should be able to choose between the Chapters 3, 5 and 9 rules for its finance profits, on the one hand, and Chapter 6 treatment, on the other. Structural lending typically will be long term lending for the purposes of capital investment by the group rather than the day to day lending generally undertaken via a cash pool. It is likely that a treasury company that has no structural lending activity and might, for example, be a stand-alone finance business or profits centre for the group (rather than simply existing to facilitate or support group activity) would instead choose to have Chapter 6 treatment when it is expected that this would result in the profits being exempt.

If a group treasury company has made a valid election (see INTM198100), the profit of the company is treated as non-trading finance profit. As the Chapter 3 incidental rules (see INTM197750) are not available if an election has been made, any finance profits of the CFC will fall to be charged by Chapter 5.