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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(9A) to (9E): Detailed Application

The rule at TIOPA10/Part 9A/S371IH(9A) to (9E), stops a CFC’s creditor relationship from being a qualifying loan relationship if the three conditions in subsection 9A are met.

  • Subsection 9A(a) requires a UK connected company to have or have had a creditor relationship where the debtor is a non-UK resident company connected with the UK connected company. This is the UK creditor relationship.
  • Subsection 9A(b) requires that there is a subsequent arrangement made directly or indirectly in connection with the UK creditor relationship. This is the relevant arrangement. In most cases it will be appropriate to treat all the steps that are contemplated at the outset as part of a single arrangement. However, where it is necessary to treat a different combination of steps as the relevant arrangement in order to achieve the intended effect of section 371IH(9A), this is provided for by the definition of arrangement in section 371VA. The arrangement is made when all major steps have been carried out.
  • Subsection 9A(c) requires that the main purpose, or one of the main purposes, of the relevant arrangement is to secure that in any accounting period:

    • the relevant UK credits of a UK connected company are lower than they would be if the relevant arrangement had not been made, or
    • the relevant UK debits of a UK connected company are greater than they would be if the relevant arrangement had not been made.
  • For the purposes of subsection (9A)(c), subsection (9C) applies subsection (9D) in determining what the relevant UK credits or debits would be if the relevant arrangement had not been made.
  • Subsection (9D) requires an assumption that, at all times after the relevant time, the UK creditor relationship remains in place on the same terms as it had at the relevant time.

“Relevant time” is defined in subsection (9E) as the time immediately before the time when the relevant arrangement is made, or if earlier, the time when the UK creditor relationship ends.