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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 Excluded from the definition of a Qualifying Loan Relationship: Section 371IH(3)

Section 371IH(3)

TIOPA10/Part 9A/S371IH(3) provides that a loan relationship cannot be a qualifying loan relationship (“QLR” - INTM217000) where:

  1. the ultimate debtor is itself a CFC to which Chapters 3 to 8 (the gateway) or Chapter 12 (the Low Profit Exemption)) apply in any of that CFC’s accounting periods and some or all of the debits of the CFC are being brought into account for the purposes of those Chapters, and
  2. as a result there is no CFC charge for the accounting period in question, or the charge is reduced.

The loan relationship is disqualified from being a QLR if the CFC charge apportioned from the ultimate debtor’s profits is reduced to any extent by debits in respect of the loan relationship. Although not all of the debits may reduce the CFC charge, the test in section 371IH(3) is an all or nothing test, where the conditions in both sub-sections (a) and (b) are met. If the condition in sub-section a) is met, but that doesn’t lead to a reduction in the CFC charge then the condition in sub-section b) is not met.

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