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HMRC internal manual

International Manual

Controlled Foreign Companies: The CFC Charge Gateway Chapter 5 - Non-trading finance profits: Leases to UK resident companies

TIOPA10/S371EE includes non-trading finance profits arising from a relevant finance lease within Chapter 5 where the lease is made by a CFC directly or indirectly to a UK resident connected company or a UK permanent establishment of a non-UK resident company that is connected to the CFC.

The rule is limited to those cases where it is reasonable to suppose that the main reason or one of the main reasons for entering into the relevant finance lease (or any other arrangement which would not be a relevant finance lease or involve the CFC, but involves the UK party to the arrangement directly or indirectly purchasing rights to use the asset) rather than purchasing the asset is a UK or non-UK tax reason. It is not a test of purpose for the finance lease, which is likely to be to provide funds to the UK, but instead a test of the reason why a finance lease was entered into rather than another means of acquiring the asset.

This rule is very similar in approach and application to the dividend arrangement rule in TIOPA10/S371ED (see INTM203700).