Controlled Foreign Companies: The CFC Charge Gateway Chapter 3 - Determining which (if any) of Chapters 4 to 8 apply: What is excluded from non-trading finance profits?: Example 3
During AP2 CFC X has an exempt trading profit (i.e. profits that have not passed through the CFC charge gateway) before interest and tax of 2000.
CFC X also receives exempt distribution income from its wholly owned subsidiary Y of 1500. Y has no non-trading finance profits arising in the AP.
During the AP CFC X accrues non-trading finance profits of 200.
CFC X has both exempt trading profit and exempt distribution income and so the relevant amount is 3500.
CFC’s non-trading finance profit of 200 is greater than 175 (5% of 3500) and so it is necessary to carry out the following steps:
- Determine the non-trading finance profit that is incidental to the trade of CFC X. The facts of this case are such that this is determined in the sum of 150.
- Deduct 150 from the CFC’s total non-trading finance profit of 200. This leaves a balance of 50.
- Determine 5% of the exempt distribution income. In this case, this it is 75 (5% of 1500).
As the non-trading finance profit that is not incidental to the trade (50) is less than 5% of the exempt distribution income (75) all of CFC X’s non-trading finance profits (200) are excluded and CFC X does not need to consider Chapter 5 further. See INTM197770.