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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 2

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

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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.