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HMRC internal manual

International Manual

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Controlled Foreign Companies: The CFC Charge Gateway Chapter 9 - Exemptions for profits from Qualifying Loan Relationships: How do you determine the profits of a Qualifying Loan Relationship: Other deductions

The rule in TIOPA10/Part 9A/S371IF Step 5 requires all debits of the CFC relating to its qualifying loan relationships (“QLRs” - INTM217000) to be taken into account (so far as not already done so in steps 2 and 4). Section 371SD provides an assumption of UK residence in computing a CFC’s assumed total profits and in particular section 371SF requires, with some specific exceptions, all beneficial claims and elections to be assumed to have been made by the CFC. There may be certain instances where it is beneficial for a CFC to claim double tax relief by making a deemed election against credit under TIOPA10/section 27, which would mean, by virtue of section 112 and following sections of TIOPA 2010, that relief would be available by way of deduction. This debit will be taken into account for the purposes of calculating the qualifying loan relationship (“QLR” - INTM217000) profits under section 371IF.

Step 5 of section 371IF only allows debits from the CFC’s loan relationships to be deducted on a just and reasonable basis. A reasonable amount of expenses of management may also be deducted from the CFC’s QLR profits in determining its chargeable profits. However this is dealt with by section 371BA(3)(b) rather than Chapter 9.