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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: Revised Matched Interest Rule: Applying the exemption: Example 1

Example 1

Aggregate net tax-interest of worldwide group is nil

Full exemption

Please use this link to view the example diagram

In the example diagram:

  • There is not net debt in the UK so the aggregate net tax-interest expense of the worldwide group is nil
  • Therefore TIOPA10/S371IE(3) is applied
  • The total profits are 100 + 20 = 120. TIOPA10/S371ID exempts 75% of the total profits, so 30 is chargeable before we consider matched interest profits.
  • Under the new section TIOPA10/S371IE(2) – “the matched interest profits” means so much of the profits mentioned in subsection (1)(a) [those profits which are not exempt under TIOPA10/S371IB or TIOPA10/S371ID] as remain after excluded credits and excluded debits are left out of account.


  • 25% of the FX gain of 20 is not included in the matched interest profits as these profits of 5 are left out of account from being net tax-interest expense amounts and net tax-interest income amount because these contain excluded credits or debits. TIOPA10/S383(3)(a) and S386(3)(a).
  • These CFC profits of 5 will therefore be apportioned to the UK
  • The matched interest profits are 100 x 25% = 25, or 30 – 5 = 25;
  • All of the matched interest profits of 25 are exempted by virtue of TIOPA10/S371IE(3).