Controlled Foreign Companies: The CFC Charge Gateway Chapter 9 - Exemptions for profits from Qualifying Loan Relationships: Revised Matched Interest Rule: Applying the exemption: Example 2
The aggregate net tax-interest of the worldwide group is not nil and the total matched interest profits apportioned to chargeable companies in the worldwide group exceeds this amount.
Partial Matched Interest Exemption
In the example diagram
- As in the previous example at INTM219370 the matched interest profits are 25. The aggregate net tax-interest of the worldwide group is 9. As the matched interest profits exceed the aggregate net tax-interest of the worldwide group then TIOPA10/S371IE (5), (6) and (7) is applied.
- First it is necessary to determine “the relevant proportion of the matched interest profits apportioned to C or other relevant chargeable companies”
- Step 1 – in this example Plc is C and there are no other chargeable companies. Plc will be apportioned 100% of FCE Co’s chargeable profits, i.e. P% = 100%
- Step 2 – P% x matched interest profits. The matched interest profits are 25 as it is the profits passing through the gateway (30) less the FX gain (5)
- Step 3 – the RPMIP is therefore 25.
- Under TIOPA10/S371IE(7) the proportion of the matched interest profits exempted = 25 x E/RPMIP
- E is the excess of the RPMIP over the aggregate net tax-interest expense of the group for the period. Therefore E is 16 (= 25 – 9)
- Amount of matched interest profits exempted = 25 x (16 / 25) = 16
- Therefore profits of 16 should be exempt which would leave 14 (= 30 – 16) being apportioned to the UK, 9 being interest and 5 being FX.