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HMRC internal manual

International Manual

From
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: What is excluded from non-trading finance profits?: Example 4

During AP3 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 500. 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 2500.

CFC’s non-trading finance profit of 200 is greater than 125 (5% of 2500) and so it is necessary to carry out the following steps:

  1. 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.
  2. Deduct 150 from the CFC’s total non-trading finance profit of 200. This leaves a balance of 50.
  3. Determine 5% of the exempt distribution income. In this case, this it is 25 (5% of 500).

5% of the exempt distribution income in the sum of 500 is 25. As this is not more than the balance of non-trading finance profit of 50 after deducting the non-trading finance profits that are incidental to the trade, then all of this balance (50) will be dealt with under Chapter 5 (or Chapter 9 if it is possible to make a valid claim).