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HMRC internal manual

International Manual

Controlled Foreign Companies: The CFC Charge Gateway Chapter 5 - Non-trading finance profits: UK Activities: UK Activities


Like Chapter 4, Chapter 5 identifies non-trading finance profits from assets that are owned by the CFC and profits from risks allocated to the CFC in situations where relevant significant people functions (SPFs) are carried out in the UK (see INTM200300). TIOPA10/S371EB(1) requires some of the steps in Chapter 4 to be taken; specifically steps 1 to 5 and 7 in TIOPA10/S371DB(1), to determine the extent to which non trading finance profits fall within this section. Steps 6 and 8 are not taken because the exclusions at TIOPA10/S371DC (UK activities - a minority of total activities), S371DD (economic value), S371DE (independent companies’ arrangements) and S371DF (trading profits) do not apply to non-trading finance profits.

The steps at in Chapter 4 at TIOPA10/S371DB(1),adapt the principles from the authorised Organisation for Economic Co-operation and Development (OECD) approach (AOA), as set out in the 2010 Report on the Attribution of Profits to Permanent Establishments (“the Report”). This is discussed in the guidance on Chapter 4. This also mentions the distinction made in the Report between SPFs and “key entrepreneurial risk-taking functions” (KERT functions), the latter term being used for businesses in the financial enterprise sector - (see Chapter 4). This guidance follows the legislation at Part 9A of TIOPA 2010 in using the abbreviated term “SPF” to mean either significant people function or KERT function, according to context. The steps in TIOPA10/S371DB(1) to be taken in consideration of assets and risks under Chapter 5 are likewise taken in accordance with the principles set out in the Report - so far as they are relevant.