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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: UK company used as a conduit in a CFC shelter: Double Taxation Relief and UK company used as a conduit: contents

Some groups have traditionally structured intra-group financing so that loans made to overseas group companies, where the interest is subject to withholding tax (WHT), have been made by UK companies, in order to best manage the double taxation relief (DTR) in respect of the WHT.

With the advent of the new CFC rules, groups may consider, in cases where the ultimate debtor will have to deduct WHT,

  • exporting UK loan receivables;
  • making new intra-group loans;
  • restructuring existing loans made by one CFC to another CFC

so they are made from financing CFCs, but structuring the arrangements in such a way so they can also claim DTR in respect of the WHT in the UK. This will involve using a UK company as a conduit in the CFC financing arrangement, as described in INTM219600. So while the UK conduit company only makes a very small margin, the UK would provide DTR on the whole of the interest paid by the ultimate debtor, rather than just in relation to the margin made by the conduit company.

In order to manage any such restructuring, there is an additional limit on the DTR available in certain circumstances involving qualifying loan relationships of CFCs. These rules are detailed in TIOPA10/S49A and S112(3).

These rules will apply where there is:

The DTR available to any UK company that sits between the lending CFC and the ultimate debtor is restricted by reference to the profits of the loans routed through the UK and realised by UK companies in the period, not the other profits of the QLR. This is referred to in the legislation as the “relevant profit amount” or amount “S”