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HMRC internal manual

International Manual

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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 6 apply?: Group treasury companies

Group treasury companies (TIOPA10/S71CE)

It is not uncommon for a multinational group to centralise its finance function in one or more large and complex group finance companies that might have a level of organisation sufficient for part or all of their activity to constitute a trade of a financial nature. Such 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 standalone 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 if it is expected that this would result in the profits being exempt.

However it is possible for a group treasury company to make a claim for all of its trading finance profits to be treated as if they were non-trading finance profits. Where a group treasury company issues a notice to HMRC, then its trading finance profits will be treated as non-trading finance profits. However, those profits are excluded from the incidental non-trading finance profits exemptions within TIOPA10/S371CB(3) and (4). A group treasury company issuing a notice will not therefore be able to exclude any of its finance profits under those incidental rules. (See INTM197750)

The definition of “group treasury company” for these purposes is taken from the worldwide debt cap rules found in TIOPA10/PT7/S316 (See CFM92520 (web)). Essentially there are two conditions for a company to be entitled to make this claim:

Where the CFC is a group treasury company in the accounting period a notice may be given to an officer of HM Revenue & Customs requesting that Chapter 6 will not apply and that trading finance profits will be treated as if they were non-trading finance profits.

The notice must normally be given within 20 months after the end of the accounting period, although a longer period may be allowed by an officer of HM Revenue & Customs.

A single company is able to give such a notice if it would be a chargeable company for the accounting period and the percentage of the CFC’s chargeable profits to be apportioned to it would be more than half of the total percentage of the CFC’s chargeable profits which would be apportioned to chargeable companies.

Two or more companies are similarly able to give such a notice if they would be chargeable companies and the percentage of the CFC’s chargeable profits to be apportioned to them, taken together, would be more than half of the percentage of the total percentage of the CFC’s chargeable profits which would be apportioned to chargeable companies.