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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: Claims for Qualifying Resources

Claims for Qualifying Resources

TIOPA10/Part 9A/S371IB sets out the rules to be applied to establish the extent to which profits from a qualifying loan relationship (“QLR” - INTM217000) will be fully exempt where it is funded out of qualifying resources. A claim can be made for up to 100% of profits of a QLR, although a claim for less than 75% exemption will not arise in practice, as a claim for partial exemption under section 371ID will be more beneficial. If the claim establishes that X% of the resources used to fund a QLR are qualifying resources then X% of the non-trading finance profits are fully exempt.

It is not possible to make a claim under section 371IB for full exemption in respect of part of a QLR and a claim under section 371ID for 75% exemption in respect of the remainder. Any profits of a QLR not exempted by way of a claim under section 371IB will be apportionable in full unless the matched interest rule in section 371IE applies to exempt part or all of the balance.

Section 371IB places the burden of proof upon the claimant company, which must demonstrate that at least X% of the resources used to fund the QLR throughout the accounting period are qualifying resources. See INTM218850 for more detail about the nature of evidence required.

The claimant must determine the sources of funding for the QLR as it stands in the accounting period. This may need historical investigation and may require direct or indirect funding sources to be considered.



A £100M loan is funded at the beginning of an accounting period (the relevant period) entirely out of qualifying resources and the loan is increased to £150m half way through the year with the balance of the loan being funded out of non-qualifying resources.

Throughout the relevant period the percentage of the loan funded from qualifying resources is 100% for the first 6 months and 67% for the second 6 months so that over the relevant period the percentage of profits that was funded from qualifying resources was 83%. However the chargeable company’s claim for the relevant period should specify X to be 67%. This is because section           371IB(2)(a) requires at least X% of the principal outstanding on the relevant loan to be funded wholly out of qualifying resources at all times during the relevant period. For the second 6 months only 67% of the principal was funded  out of qualifying resource. In this scenario a claim under section 371D would be more advantageous for the company than a section 371IB claim.

If for the first relevant period it is subsequently established that in fact 100% of the loan was derived from qualifying resources at all times during the relevant period it is possible for the chargeable company to withdraw the claim under section 371ID and make a section 371IB exemption claim instead.