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HMRC internal manual

International Manual

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HM Revenue & Customs
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Controlled Foreign Companies: The CFC Charge Gateway Chapter 5 - Non-trading finance profits: Capital investment from the UK: Relevant UK funds or other assets

Any non-trading finance profits arising from the investment of “relevant UK funds or other assets” as defined by TIOPA10/S371EC(4) fall within Chapter 5. For these purposes “UK funds” are monetary assets and “other assets” are non-monetary assets. Regardless of where the Significant People Functions (SPFs) are, there will still be Chapter 5 profits if the CFC has earned non-trading finance profits from loans that are funded from relevant UK funds.

“Relevant UK funds or other assets” are defined at TIOPA10/S371EC(4) as funds or assets which represent or are derived directly, or indirectly, from the following sources.

TIOPA10/S371EC(4)(a)

  • A UK connected company subscribing for shares in, or making any other type of capital contribution to, the CFC. The contribution of UK funds could be reflected in an increase in any share premium account or other reserve created on issue of the shares or at a later date. A capital contribution also covers the transfer of an asset by a UK connected company to a CFC in return for shares or any other credit to capital or reserves. It could also include the transfer of an asset between CFCs held directly or indirectly by a UK parent. In the latter circumstances TIOPA10/S371EC(4)(a) would apply where a capital contribution to the CFC can be said to be made indirectly by the UK parent of the CFCs.

TIOPA10/S371EC(4)(b)

  • Any amounts included within the CFC’s chargeable profits and in relation to which the CFC charge was charged under Part 9A for any earlier accounting period. Note that only chargeable profits of a CFC for accounting periods beginning on or after 1 January 2013 in relation to which a CFC charge has been made fall within this provision and not apportionments and CFC charges under the pre-2013 CFC rules.

TIOPA10/S371EC(4)(c)

  • Any amounts which are left out of account in determining the CFC’s assumed total profits for that or any earlier accounting period to which Part 9A applied due to a claim under TIOPA10/S174 for a compensating adjustment in relation to a transfer pricing adjustment under Part 4 of TIOPA10 on another group company. These are the amounts arising to the ‘disadvantaged person’ from the provision entered into with the ‘advantaged person’ mentioned in section 174, to the extent that the actual provision differs from the arm’s length provision.

TIOPA10/S371EC(4)(d)

  • Any other funds or other assets received by the CFC (directly or indirectly) from a UK connected company except (by virtue of TIOPA10/S371EC(5)) funds or assets received in exchange for the provision of goods or services by the CFC or sums received by way of a loan from the UK to the CFC.

It should be noted that the term “relevant UK funds or other assets” is widely defined by virtue of TIOPA10/S371EC(4)(d) which covers funds or assets received by the CFC from a UK connected company that are not covered by section 371EC(4)(a) to (c). However in some cases there will be no need to trace the income that subsequently arises from investing the profits derived from the relevant UK funds as they may not be relevant UK funds for section 371EC purposes - unless they fall within TIOPA10/S 371EC(4) (see INTM203580).