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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: Matched Interest Rule: Amendment to the Worldwide Debt Cap Rules

The worldwide debt cap rules in TIOPA10/Part 7 were amended by the insertion of TIOPA10/S314A which provides that the amount of any CFC charge in respect of “relevant finance profits” (under Chapters 5, 6 or 9 of Part 9A) is added to the finance income amount of the company for the period of account of the worldwide group in relation to periods of account before 1 April 2017.

“Relevant finance profits” for these purposes are defined at TIOPA10/S314A(4) as finance profits within Chapters 5, 6 or 9 of Part 9A excluding any amounts relating to derivative contracts or that are excluded credits within TIOPA10/S314(3) i.e. exchange gains, reversals of impairment losses and profits from related transactions. The worldwide debt cap rules work by essentially comparing interest or interest-like costs. And so section 314A operates so that only the interest or interest-like amounts of a CFC charge on a UK company are added to that company’s figure of financing income amount. This ensures consistency between finance income amounts included within Part 7 as a result of the application of Part 9A and finance income amounts included within Part 7 more generally.

The comparison of tested income amount (TIA) against tested expense amount (TEA) (both as added to if directed by the relevant finance profits of a group’s various CFCs) is essentially a comparison of interest and interest like income against interest and interest like expense. However the leftover profits that will be potentially exempted under the matched interest rule could be made up of amounts that wouldn’t be included in either the figure of TIA or TEA. Whilst in most cases a CFC’s leftover profits will be made up of interest receipts, it is possible that those profits will include other amounts such as FOREX gains.