F1PART 9AControlled foreign companies
C1Chapter 9Exemptions for profits from qualifying loan relationships
Pt. 9A Ch. 9 applied (with modifications) by 2009 c. 4, s. 18HE (as substituted (with effect in accordance with Sch. 20 para. 55(2) of the amending Act) by Finance Act 2012 (c. 14), Sch. 20 para. 6)
371IBLoans funded out of qualifying resources
1
This section applies to a qualifying loan relationship if company C's claim under this Chapter states that this section is to apply to the qualifying loan relationship.
2
X% of the profits of the qualifying loan relationship are exempt if company C's claim establishes—
a
that, at all times during the relevant period, at least X% of the principal outstanding on the relevant loan (as that may vary from time to time during the relevant period) is funded by the CFC wholly out of qualifying resources, and
b
that the ultimate debtor in relation to the qualifying loan relationship (see section 371IG(2) to (7)) is resident at all times during the relevant period in one territory only and that its territory of residence does not change at any time during the relevant period.
3
“X%” is the percentage specified in company C's claim for the purposes of this section in relation to the qualifying loan relationship (which may be 100%).
4
“The relevant period” means—
a
the accounting period, or
b
if for any part of the accounting period no principal is outstanding on the relevant loan, the part of the accounting period during which there is principal outstanding.
5
“The relevant loan” means the loan which is the subject of the qualifying loan relationship.
6
“Qualifying resources” means—
a
profits of the CFC's business so far as it consists of the making of loans to relevant members of the CFC group which are used solely for the purposes of the business of the CFC group in the relevant territory, or
b
funds or other assets received by the CFC in relation to shares held by the CFC in, or issued by the CFC to, members of the CFC group.
7
Funds or other assets received by the CFC fall within subsection (6)(b) only so far as they derive (directly or indirectly) from—
a
profits of the business of the CFC group in the relevant territory,
b
the qualifying value of relevant pre-acquisition funds or other assets (see section 371IC), or
c
an issue of shares which meets the following requirements—
i
the shares are shares in a member of the CFC group (“the parent member”) which is not the 75% subsidiary of any company,
ii
the shares are ordinary shares which are not redeemable, and
iii
the shares are issued to persons who are not members of the CFC group.
8
Subsection (9) applies if the qualifying loan relationship is made under, or is otherwise connected (directly or indirectly) with, an arrangement under which a member of the CFC group incurs a debt in the United Kingdom to—
a
a non-UK resident person, or
b
a UK resident person who is not a member of the CFC group.
9
It is to be assumed for the purposes of subsection (2) that, at all times during the relevant period, the amount of funds or other assets—
a
out of which the principal outstanding on the relevant loan is funded by the CFC, and
b
which are not qualifying resources,
is no less than the amount of the debt mentioned in subsection (8).
F29A
Subsection (9) does not apply if the debt incurred by the member of the CFC group as mentioned in subsection (8) represents the principal on a loan made to the member to which subsection (9B) or (9D) applies.
9B
This subsection applies to a loan if the member repays it within 48 hours of the loan being made.
9C
But subsection (9B) does not apply to a loan if the repayment of the loan within the 48 hours occurs under, or is connected (directly or indirectly) with, an arrangement the main purpose, or one of the main purposes, of which is to ensure that subsection (9) does not apply because of—
a
the loan, or
b
any other debt which a member of the CFC group incurs (or is expected to incur) in the United Kingdom.
9D
This subsection applies to a loan if—
a
there is an issue of shares which meets the requirements of subsection (7)(c)(i) to (iii),
b
the loan was made before the issue of shares but with the expectation that it would be repaid by the member out of funds deriving (directly or indirectly) from the issue of shares,
c
the loan is repaid by the member out of such funds within the period of 6 months beginning with the day on which the loan was made, and
d
the loan—
i
was made by a person who was not a member of the CFC group, and
ii
was not made (wholly or partly nor directly or indirectly) out of funds or other assets provided by a member of the CFC group.
10
For the purposes of this section and section 371IC—
a
subject to subsections (11) and (12), “the CFC group”, as at any time, means the CFC taken together with the companies with which it is connected at that time,
b
a member of the CFC group is “relevant” if it is resident in the relevant territory and no other territory,
c
“the relevant territory” means the territory of residence of the ultimate debtor mentioned in subsection (2)(b),
d
references to the business of the CFC group in the relevant territory do not include the making of loans to persons resident outside the relevant territory,
e
references to the profits of the business of the CFC group in the relevant territory do not include—
i
profits arising (directly or indirectly) from funds or other assets received by relevant members of the CFC group in relation to shares held by them in members of the CFC group which are not relevant members, or
ii
so far as not covered by sub-paragraph (i), profits arising (directly or indirectly) from the business of the CFC group in any territory outside the relevant territory, and
f
section 931U of CTA 2009 (definitions of “ordinary share” and “redeemable”) applies as it applies for the purposes of Part 9A of CTA 2009 (company distributions).
11
If the CFC is controlled by one UK resident company only (“the controller”), in relation to any time before the CFC came to be controlled by the controller, except in subsection (6), references to the CFC group include references to the controller taken together with any companies with which it is connected at that time.
12
If the CFC is controlled by two or more UK resident companies which are all connected with each other (“the controllers”), in relation to any time—
a
before which the CFC came to be controlled by the controllers, and
b
at which the controllers (or those of the controllers which exist at that time) are all connected with each other,
except in subsection (6), references to the CFC group include references to the controllers (or those of the controllers which exist) taken together with any other companies with which they are all connected at that time.
Pt. 9A inserted (17.7.2012) by Finance Act 2012 (c. 14), Sch. 20 para. 1 (with ss. 56-58)