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HMRC internal manual

International Manual

Controlled Foreign Companies: The CFC charge gateway chapter 9 - exemptions for profits from qualifying loan relationships: scope of the rules: business premises condition

The business premises requirement for a finance company applies in the same way as the business premises requirement for the trading profits exclusion provided in TIOPA10/Part 9A/Chapter 4. The business premises in the territory of residence of the CFC have to be in use by the business with a reasonable degree of permanence, or at least be intended to be used in this way. In some cases, the activities of a financing CFC with very few loans may not be significant and the business premises will not be used every day, or even for days at a time. In these cases it is not expected that the CFC will have business premises available every day of the year, but that the CFC will have access to those premises when it needs to, and that that access is assured over say a 12-month period.

The business premises test is not intended to be an onerous condition to meet but nevertheless the business premises at the CFC’s disposal should be sufficient to enable it to conduct its business activities from those premises and should be commensurate with the level of activity. Where the activities of the CFC are undertaken in its territory of residence (for example Board meetings and day to day activities of the company) they must in the main be undertaken from those premises. There is no requirement for all the activities of the CFC to be conducted from the premises and some degree of outsourcing of activities will not mean the test is failed. For example, if legal services are outsourced to a local firm rather than conducted in-house at the business premises, this does not mean the premises test won’t be met. However, outsourcing all activity, leaving only an annual board meeting to be held in the business premises is unlikely to satisfy the requirements of the business premises test.

It is irrelevant for the purposes of the business premises test whether the premises are owned or leased by the CFC. Nor is there a requirement that the activities must only be undertaken from one location in the CFC’s territory of residence.