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HMRC internal manual

International Manual

Controlled Foreign Companies: The CFC Charge Gateway Chapter 5 - Non-trading finance profits: UK Activities: Attribution to a UK permanent establishment

TIOPA10/S371DB(1) Step 5

As with Chapter 4, the basic question for Step 5 of TIOPA10/S371DB(1) is to what extent the asset or risk being considered would be attributed to a UK permanent establishment of the CFC, based on the assumptions that Step 5 requires.

Example of UK Significant People Functions (SPFs) - attribution of profits

Take the example at INTM203350 of a standard cash pooling arrangement involving a Hong Kong resident CFC carrying on cash-pooling arrangements. In addition to the cash-pooling, the CFC is now provided with additional equity of US$1bn that is then lent to a US group to fund a third-party US acquisition. The profits derived from this loan are considered separately from the cash-pooling arrangements and so it is necessary to establish whether any UK SPFs were involved in creating the loan and managing the ongoing risk on the loan. If any such UK SPFs are identified, step 5 of TIOPA10/S 371DB(1) requires an assumption that those UK SPFs are carried out by a permanent establishment which the CFC has in the UK; the asset and associated risk are then attributed to that deemed UK permanent establishment. Consequently the non-trading finance profits on the loan will pass through the Chapter 5 charge gateway (unless a Chapter 9 claim is made) with no exclusions available for UK activities as a minority of total activities, economic value or independent companies’ arrangements as would be the case under Chapter 4 (the CFC charge gateway for trading profits).