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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: Applying the exemption: Example 1


A UK resident company is a member of a group for which the TIA is £26m and the TEA is £30m before any apportionment has a net financing expense amount (for the purposes of the worldwide debt cap) of £15m. The UK company wholly owns a CFC which has leftover profits of £10m that, apart from the application of section 371IE would pass through the CFC charge gateway by way of Chapter 9. The application of section 314A (again if section 371IE doesn’t apply) means the UK company must take account of an amount of financing income of £10m, which in turn reduces its net financing expense amount by £10m to £5m. As the UK company still has a net financing expense amount, that amount is part of the aggregate figure of TEA, which as a result is reduced to £20m.

E=£6m (the amount by which the TIA exceeds the adjusted figure of TEA)


R=£10m (the amount by which the figure of TEA is reduced)

The percentage Z is 60% and so 60% of the leftover profits, £6m are exempt under section 371IE. The remaining leftover profits of £4m pass through the CFC charge gateway and are also added to the UK company’s figure of net financing amount for the purposes of the worldwide debt cap.