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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: Case Study: Consideration of replacing overseas external borrowings with UK external borrowings

UK activities


The source of funding for the loans from Financing CFC to Trading CFC and UK Trading has changed, but, in itself, the decision to change the source of funding for the loan is not a significant people function (SPF) in relation to creation of the loans or the ongoing management of the risks associated with the loans. TIOPA10/S371EB would not apply simply based on the change in the external borrowings but the change could indicate that the UK Treasury was going to take a more active role in the management and decision-making around the making of structural loans in the future.

Capital investment from the UK


Pre-migration, the loans held by the Financing CFC were funded directly by equity from Old Parent which in turn was funded by a bank loan to Old Parent. Post-migration the equity investment by the Old Parent in the Financing CFC does not change, but there is now an equity investment by UK Plc in Old Parent. The overseas loan is now indirectly derived from capital contributed by the UK.

In addition, the pull up of the external debt from overseas to the UK will have an impact on any claim that might be made under Chapter 9 of TIOPA10. TIOPA10/S371IH(8) and (9) will prevent loans 1 and 2 from being qualifying loan relationships where the main purpose of the arrangement is to obtain a tax advantage for any person.