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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: Risk assessment on Significant People Functions (SPFs)


If the loan is a qualifying loan relationship, Chapter 9 will give a more favourable result for a company than a CFC charge under Chapter 5 unless the application of TIOPA10/S371EB leaves at least 75% of the profit in respect of the loan outside the CFC charge.

Our expectation is that for larger, medium to long term loans funded by equity, the SPF relating to the creation of the loan and, in most cases, the ongoing management of the loan will rest with a group’s finance function (meaning the function encompassing the accounting, tax, treasury, corporate finance and mergers and acquisitions teams or a similar central operation) rather than the group treasury team in isolation. Experience has shown that this type of loan is planned and managed from ‘the centre’. The actual lender may be seen as having taken the decision to lend, but will in most cases not have initiated or carried out the planning for intra-group finance structures.

Assertions that the relevant SPFs are undertaken by the lender or other bodies outside of the group finance function in such situations should therefore be subject to careful scrutiny. For large structural loans our expectation is that most if not all of the SPFs will be located in the UK. Cases where the result of Step 7 does not bring all of the profits from large intra-group loans into the CFC charge should therefore be examined critically. When considering a claim that the SPFs relevant to a CFC’s lending are wholly or mainly outside the UK, consider the following points:

  • Whether it is credible to suppose that the group has devolved the decision-making processes for the lending of the funds in question to the CFC. In the case of a large structural loan, the decision to lend is almost certainly linked with strategic group decisions about the deployment of group resources and the management of overall effective tax rates. Is it reasonable to suppose that the CFC was given responsibility to consider such matters without UK involvement?
  • Many groups have a certain threshold of lending that may be undertaken through autonomous local arrangements. It is more likely that SPFs will be wholly or mainly outside the UK under arrangements of this type, even if certain lending parameters are established centrally.
  • Although the setting of strategic parameters would not in itself be regarded as an SPF, there needs to be a clear distinction between such a function and those functions more closely related to active decision-taking in respect of the assumption and management of risk. In the case of making an intra-group loan, these functions may be more closely aligned.