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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: What is a Qualifying Loan Relationship: The Ultimate Debtor Rule - Detailed Application: Arrangements involving equity instruments

The look through provisions are not restricted to cases where funds are passed by way of loans. TIOPA10/Part 9A/S371IG(3) refers to loans that are used to fund (directly or indirectly) other loans, but does not provide any restriction on the form of that funding. Funds might be provided using an arrangement that involves an equity investment.

In the link to the example diagram below, a loan (loan A) of £100m is made by CFC 1 to CFC 2, which in turn acquires £100m preference shares issued by CFC 3. That CFC makes a loan of £100m to P. The first loan and the investment in preference shares are all part of an arrangement to provide CFC 3 with the funds to make a loan of £100m to P. This second loan (loan B) has been indirectly funded from loan A. The ultimate debtor is P.

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