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HMRC internal manual

International Manual

HM Revenue & Customs
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Controlled Foreign Companies: The CFC Charge Gateway Chapter 5 - Non-trading finance profits: UK Activities: Location of the Significant People Functions (SPFs)

TIOPA10/S371DB(1) Step 4

There will be a need to differentiate between local execution by the CFC of the decision to lend and the group finance functions involved in the planning and processes leading up to that. Local execution of the loan might include some or all of the following, none of which would be treated as SPFs:

  • Completing the contract formalities / signing the contract;
  • Routine monitoring of the loan;
  • Administration of the loan.

Local execution will in some cases be carried out by the lender’s board of directors made up of senior executives and experienced non-executive directors. In such cases the board may have the right to decide not to lend (although the likelihood of this happening in practice may be remote). Local directors will need to comply with local company law, often including consideration of default issues. Again a realistic evaluation of the relative importance of any functions performed by the CFC in this respect will need to be made against those performed elsewhere in the group in relation to the financing structure to be put in place. As with Chapter 4 (see Step 4) the analysis needs to consider the procedures of the business; where people habitually perform the relevant functions and in what capacity and circumstances.

The active decision-making about the roll-over of large intra-group loans may be planned and decided by an overseas group treasury company, but the original planning and decision to structure the investment by way of an intra-group loan will remain an important factor.

For significant structural loans in a UK headed multinational group related to an acquisition for example we would usually expect the main SPFs to be in the UK even where treasury / group finance functions are located elsewhere. The availability and form of the funding will be an important part of the investment appraisal process that would require the involvement of the centre of operations, even where regional centres and divisions have considerable autonomy devolved to them.

A common sense approach should be adopted. For example, is it credible to suppose that the investment of particular group funds was left at the CFC’s discretion? Is it more likely that they were permitted to retain them only for specified purposes? The example of the significant structural loan may of course be differentiated from arrangements such as standardised cash pooling, where there might be significant non-UK treasury functions with the head of treasury relying on their non-UK teams except for a governance role (see INTM203350). Although every case must be judged on its facts and circumstances, in a straightforward cash pooling scenario where a small margin is made by the group treasury company for the service that it is providing we might expect the SPFs for the cash pooling activity to be carried on outside the UK.