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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?: Evidence Required: contents

The legislation is not prescriptive about the nature of evidence required to establish the source of funding of qualifying resources. Where the legislation allows indirect sources of funding to be considered, it will be necessary to consider how the group of companies ultimately obtained the resources used to create the CFC’s loan.

Groups will likely find it easier to restructure financing arrangements going forward and demonstrate clearly that the source of the funds are qualifying resources. However groups will also be looking at existing financial arrangements and the potential for restructuring existing financial arrangements so that intra-group lending is funded from qualifying resources. Demonstrating that funds are derived from qualifying resources in these circumstances will inevitably be more challenging as groups generally won’t have split funding sources in a readily identifiable manner.

In some cases an amount of funding may be obtained from a pool of resources that include both qualifying and non-qualifying resources.

For example:

  • a distribution may be made out of profits of which some but not all fall within section 371IB(7)(a);
  • a sale of shares may occur when share value is partly attributable to an earlier share for share exchange and partly attributable to other sources of value, such as post acquisition profits or capital contributions;
  • an external acquisition that is pushed down to a CFC through steps involving the issue of shares and intra-group debt, may ultimately be funded by a mix of resources such as a rights issue and external borrowings.

In such cases, if there is no evidence to support any particular funding source, the resource must be assumed to include a proportion of all the available funding sources.

Use this link to view example part one

Use this link to view example part two