Beta This part of GOV.UK is being rebuilt – find out what this means

HMRC internal manual

International Manual

From
HM Revenue & Customs
Updated
, see all updates

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: Restriction to Double Taxation Relief by way of credit

The limit to DTR by way of credit is calculated using the formula

R x S

Where

  • R is the rate of corporation tax payable by the relevant UK company (before any credit relief).
  • S is the UK company’s share of the relevant profit amount (or the proportion of this amount that arises in the period)

The relevant profit amount is calculated by reference to “Loan A” which is the subject of a creditor relationship with the lending CFC and “Loan B” which is made to the Ultimate Debtor and is funded by Loan A. The calculation takes account of any UK company in the lending chain, directly or indirectly.

The relevant profit amount (“S”) is calculated using the following steps:

Step 1 - establish the loan relationship credits in the period from “Loan B”

Step 2 - determine the loan relationship credits of the Creditor CFC’s qualifying loan relationship for the period and then subtracts this sum from the amount established in Step 1 above. This is the relevant profit amount.

Step 3 - where there is more than one company in the lending chain, the relevant profit amount is allocated between all the parties on a just and reasonable basis.

Use this link to view example one

Where there is more than one conduit in the lending chain, the relevant profit amount is apportioned amongst these persons on a just and reasonable basis. It will include anyone who has made or received a loan in that lending chain (including persons who only provide part of the funds for “Loan B”). The relevant profit amount will also be apportioned to persons who have received a loan but then pass on the funds as an investment by way of preference shares in another company in the lending chain.

Use this link to view example two

The relevant profit amount will also be apportioned to any CFCs in the lending chain where a just and reasonable apportionment would allocate part of the relevant profit to that company. The share of the relevant profit amount will be calculated on the assumption that they are UK resident, within the charge to corporation tax and consequently in receipt of loan relationship credits (as defined by CTA09/Part 5).