INTM218855 - 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: US Sub-groups

US sub-groups can present some particular difficulties with evidence of source of funds, because:

  • US companies do not necessarily prepare statutory accounts;
  • Some US states do not have any requirement to match a distribution with any particular profits or other source of funds. Distributions are permitted on the sole condition that the company remains solvent after the distribution.

In such cases a pragmatic approach will be necessary to determine the most plausible source for funds. For example, funds derived from a distribution will be qualifying resources for a CFC’s loan to the US providing it is reasonable to suppose that in substance the distribution is sourced from the group’s US profits. In making this judgement, take account of the following factors (as well as any other factors that may be relevant to the particular case):

  • Does the group have sufficient US sourced profit to make the distribution?
  • Have distributions been made to the US from non-US group subsidiaries that the group intended be subsequently distributed out of the US?
  • Is interest on the loan attributed to US profits or to foreign dividends for US tax purposes?
  • Are there any special factors that link the distribution to non-US sources of value within the group?