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HMRC internal manual

International Manual

HM Revenue & Customs
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Controlled Foreign Companies: The CFC charge gateway chapter 9 - exemptions for profits from qualifying loan relationships: scope of the rules: loan relationship for chapter 9 purposes

TIOPA10/Part 9A/Ch 9/S371IA(10) explains that a loan relationship for Chapter 9 purposes is limited to a loan relationship that is a money debt arising from a transaction for the lending of money as defined at section 302(1) CTA 2009 (see CFM31010).

This will include;

  • An acquisition of an asset that is left on loan account
  • An instrument issued in exchange for the issue of shares by virtue of section 303(3) CTA 2009
  • Loans where the interest payable may be dependent on the profits of the borrower, or loans which carry a conversion option into shares provided the loan otherwise meets the requirement of section 302(1) CTA 2009.

This is in contrast to Chapter 5 where non-trading finance profits (“NTFPs”) will include any profits that fall to be dealt with under CTA09/Part 5 by virtue of CTA09/Parts 6 and 7 and will also include NTFPs arising on relevant finance leases, and any amounts that would be chargeable to corporation tax under CTA09/Part 9A (company distributions).


In several territories mandatorily redeemable preference shares are regarded as debt for local tax purposes and as a result distributions in respect of those shares are taxable as a result of the operation of CTA 2009/S931B(c) or S931D(c). Such distributions will be NTFPs for Chapter 5 purposes but not for Chapter 9 purposes as they do not arise on a money debt which itself arose from a transaction for the lending of money. The debt has not arisen as a consequence of a funding need of the CFC but instead is a statutory deduction offered by a number of non UK jurisdictions for a variety of tax and non-tax related reasons.