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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: Full Exemption - Qualifying Resources: What are Qualifying Resources?: Profits from lending to the territory:

CFC investing its lending profits in other group companies

A CFC may invest its lending profits in other group companies

Use this link to view example one

As an alternative to depositing funds from profits of lending in a bank account or with a group treasury company before using those funds for further lending, a CFC may invest those profits in another group company. For example, a financing CFC may invest its profits in redeemable preference shares issued by a UK company as an alternative to upstream lending the profits to the UK. If the shares are redeemed, then the funds from the repayment of the shares may then be used as funding for further loans by the financing CFC with the proviso that the group can demonstrate that the return of the funds solely represents the profits that were originally earned from lending to the relevant territory. If this is the case, then the repaid funds may subsequently be used as qualifying resources.


To qualify under section 371IB(6)(a), profits must arise from a loan made to the relevant territory that is used for group business in the relevant territory. For example, profits from a loan to a group company resident in territory X used for the purpose of acquiring shares in a territory Y or for the purpose of lending to other group companies in territories Y and Z will not represent qualifying resources if subsequently used to make loans to group companies resident in territory X. This is because the profits have not been generated from lending that has been used for the purposes of the business of the CFC group in territory X. While in the second example the loans may have been made by a group company resident in territory X, that company may not be the ultimate debtor and the loans have been used to fund group business outside of territory X.

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Use this link to view example three