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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: the chapter 9 claim

A chargeable company must make a claim to an officer of HMRC under TIOPA10/Part 9A/S371IA(2) in order for Chapter 9 to apply. Where a claim is made the rules in Chapter 9 apply by virtue of section 371CB(8) to all of the non- trading finance profits (“NTFPs” - INTM203000) arising from qualifying loan relationships (“QLRs” - INTM217000) of the CFC for the accounting period.

The full and 75% exemptions are given by way of an adjustment that is made to a CFC’s chargeable profits and creditable tax for an accounting period at step 2 of section 371BB(1). Section 371IA(3) provides that it is only those QLR profits that are not fully exempt under Chapter 9 that will form part of a CFC’s chargeable profits.

Example

A CFC has the following NFTPs arising in an accounting period

  • £10m from loan A that is a QLR
  • £20m from loan B that is a QLR
  • £15m that are non-exempt distributions

A claim is made for Chapter 9 to apply, specifying that section 371IB (the full exemption) should apply to the profits in respect of loan A, exempting 90% of the NFTPs from that loan. Section 371ID (75% exemption) applies to loan B. As a result of the claim profits of £6m pass through the CFC charge gateway by way of Chapter 9 (£1m from loan A and £5m from loan B); the remaining profits of £15m do not pass through the CFC gateway by way of Chapter 9 as the non-exempt distribution profits do not fall within section 302(1) CTA 2009. Instead the £15m non-exempt distributions will pass through the CFC gateway by way of Chapter 5 (on the assumption for this example that the profits fall within Chapter 5).