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HMRC internal manual

International Manual

HM Revenue & Customs
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Controlled Foreign Companies: The CFC Charge Gateway Chapter 9 - Exemptions for profits from Qualifying Loan Relationships: Matched Interest Rule: When does the matched interest rule apply

The matched interest rule in TIOPA10/Part 9A/S371IE applies for an accounting period when:

  1. there remain non-trading finance profits (“NTFPs” - INTM203000) in respect of qualifying loan relationships (“QLRs” -INTM217000) of the CFC that are not exempt after the application of sections 371IB and 371ID (these are referred to as the “leftover profits”); and 
  2. (apart from the application of this section) profits under Chapters 5, 6 or 9 would be apportioned to a UK resident group company and would be added to that company’s financing income for the purposes of the worldwide debt cap rules (under section 314A); and 
  3. the “tested income amount” (TIA) for the group (taken from the calculation under worldwide debt cap rules and including amounts added under section 314A) exceeds the “tested expense amount” (TEA) of the group (again taken from the calculation under the worldwide debt cap rules).

The extent to which the leftover profits will be exempt will depend on the make-up of the figure of tested income amount, taking account of amounts that would otherwise to be added to the UK group companies financing income amounts.

The matched interest rules make use of certain calculated amounts from the worldwide debt cap rules in TIOPA10/Part 7.