INTM203580 - Controlled Foreign Companies: The CFC Charge Gateway Chapter 5 - Non-trading finance profits: Capital investment from the UK: Profits generated in overseas subsidiaries

TIOPA10/S371EC(4)(a) and (d) potentially catch capital indirectly contributed to a finance CFC where the capital derives from profits generated in overseas trading subsidiaries from capital provided by the UK. It will generally be difficult however to establish -

  • those profits that derive from capital;
  • those profits that derive from activities undertaken in those overseas subsidiaries;
  • and those profits that derive from a mix of the two.

In general a CFC will not be treated as having relevant UK funds in a scenario where a foreign holding company sets up an intra-group financing CFC and capitalises it via dividends received out of the retained earnings of its foreign trading subsidiaries. In other cases however the profits of a financing CFC will almost wholly derive from the provision of equity capital and so in these cases it is much more likely that where the original capital is provided, directly or indirectly, from the UK then profits subsequently earned in relation to that capital and used to source more intra-group lending will be treated as capital investment from the UK.

Where a CFC carries out multiple activities

Where a CFC carries on trading activities as well as intra-group lending activity, the group will need to establish whether any of the loans are funded, directly or indirectly, from relevant UK funds or other assets. In addition, groups will need to consider the application of TIOPA10/S371EB and whether there are any UK SPFs in respect of the loans.