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(b) the guarantee is necessary for the purpose of meeting
regulatory requirements applicable to the other company’s
insurance business,

(c) in consequence of having given the guarantee, the CFC is
5required by regulatory requirements applicable to its
insurance business to hold more assets than it would
otherwise be required to hold, and

(d) during the accounting period, the CFC holds assets solely for
the purpose of meeting that requirement for more assets.

(6) 10The value of the assets held by the CFC as mentioned in subsection
(5)(d) is to be deducted from the CFC’s free assets.

(7) For the purposes of this section the “value” of an asset is the amount
which it is reasonable to suppose the CFC would obtain for the
transfer of all the CFC’s rights in respect of the asset from a person
15not connected with the CFC.

371FB Qualifying loan relationships

(1) Subsection (2) applies if, during the CFC’s accounting period, the
CFC is the ultimate debtor in relation to a qualifying loan
relationship (within the meaning of Chapter 9) of another CFC (“the
20creditor CFC”).

(2) E% of the principal outstanding during the CFC’s accounting period
on the loan which is the subject of the qualifying loan relationship is
to be added to the CFC’s free capital or free assets (as the case may
be).

(3) 25“E%” is given by the following formula—


where—

(4) For the purposes of subsection (3)

(a) references to the profits of the qualifying loan relationship
are to the profits of the qualifying loan relationship for
35accounting periods of the creditor CFC which fall wholly or
partly in the CFC’s accounting period,

(b) the profits of the qualifying loan relationship for an
accounting period of the creditor CFC are to be determined in
accordance with Chapter 9,

(c) 40the steps in subsection (5) are to be taken to determine the
amount of the profits of the qualifying loan relationship for
an accounting period of the creditor CFC which are
“exempt”, and

(d) the profits of the qualifying loan relationship for an
45accounting period of the creditor CFC which falls only partly
in the CFC’s accounting period, and the amount of those
profits which are exempt, are to be apportioned between—

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(i) the part of the creditor CFC’s accounting period
which falls in the CFC’s accounting period, and

(ii) the part which does not,

with only those profits, and the amount of exempt profits,
5apportioned to the part mentioned in sub-paragraph (i) being
included in P or EP (as the case may be).

(5) Here are the steps referred to in subsection (4)(c).

The steps are to be taken separately in relation to each chargeable
company which makes a claim under Chapter 9 in relation to the
10creditor CFC’s accounting period.

The amount of the profits of the qualifying loan relationship for the
creditor CFC’s accounting period which are exempt is the total of the
amounts given by step 2.

Step 1

15Determine the amount of the profits of the qualifying loan
relationship for the accounting period which, in the case of the
chargeable company, are exempt under Chapter 9.

Step 2

Multiply the amount determined at step 1 by P% (as defined in
20section 371BC(3), ignoring sections 371BG(3)(a) and 371BH(3)(b)).

371FC Loans from foreign permanent establishments of UK resident
companies

(1) Subsection (2) applies if—

(a) there is a company (“C”) which has made an election under
25section 18A of CTA 2009 (exemption for profits or losses of
foreign permanent establishments),

(b) during a relevant accounting period of C which begins on or
after 1 January 2013, C has a creditor relationship which,
applying the assumptions set out in section 18H(3) of CTA
302009 in relation to C for the relevant accounting period,
would be a qualifying loan relationship (within the meaning
of Chapter 9 of this Part) of C in relation to which the CFC
would be the ultimate debtor,

(c) in the application of section 18H(2) of CTA 2009 for the
35relevant accounting period, C makes a claim under Chapter
9 of this Part (as applied by section 18H(2)), and

(d) the relevant accounting period falls wholly or partly in the
CFC’s accounting period.

(2) 75% of the principal outstanding during the CFC’s accounting
40period on the loan which is the subject of the qualifying loan
relationship is to be added to the CFC’s free capital or free assets (as
the case may be).

(3) Terms used in this section which are defined in section 18A of CTA
2009 have the meaning given by that section.

371FD 45 Exclusion: banking business

(1) The HMRC Commissioners may by regulations provide that, if
specified conditions are met, step 3 in section 371FA(1) is not to

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apply in relation to the CFC’s trading finance profits so far as they
arise from banking business, or banking business of a specified
description, carried on by the CFC.

(2) Regulations under subsection (1) may (in particular) make provision
by reference to—

(a) 5the territory in which a CFC is resident or any territory in
which its banking business is regulated or carried on, or

(b) the regulatory requirements imposed from time to time in
any territory in relation to banking business.

371FE Exclusion: insurance business

(1) 10The HMRC Commissioners may by regulations provide that, if
specified conditions are met, step 3 in section 371FA(1) is not to
apply in relation to the CFC’s trading finance profits so far as they
arise from insurance business, or insurance business of a specified
description, carried on by the CFC.

(2) 15In subsection (1) “insurance business” does not include insurance
business so far as consisting of the effecting or carrying out of
contracts of insurance covered by section 371GA(2) (UK insurance
contracts), including the investment of premiums received from such
contracts.

(3) 20Regulations under subsection (1) may (in particular) make provision
by reference to—

(a) the territory in which a CFC is resident or any territory in
which its insurance business is regulated or carried on, or

(b) the regulatory requirements imposed from time to time in
25any territory in relation to insurance business.

Chapter 7

The CFC charge gateway: captive insurance business

371GA The basic rule

(1) The CFC’s profits falling within this Chapter for the purposes of step
2 in section 371BB(1) (the CFC charge gateway) are any amounts
30included in its assumed total profits so far as they—

(a) arise from the CFC’s insurance business,

(b) fall within subsection (2), and

(c) fall within subsection (7) where applicable.

(2) An amount falls within this subsection if it derives (directly or
35indirectly) from—

(a) a contract of insurance which is entered into with—

(i) a UK resident company connected with the CFC, or

(ii) a non-UK resident company connected with the CFC
acting through a UK permanent establishment, or

(b) 40a contract of insurance which—

(i) is entered into with a UK resident person, and

(ii) is linked (directly or indirectly) to the provision of
goods or services to the UK resident person by a UK
connected company.

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(3) In subsection (2)(b)(ii)

(4) Subsection (2)(a)(i) does not cover a premium paid under a contract
of insurance if—

(a) 10the UK resident company has made an election under section
18A of CTA 2009 (exemption for profits or losses of foreign
permanent establishments), and

(b) the premium is wholly brought into account for the purpose
of determining any exemption adjustment in relation to the
15company under that section.

(5) Subsection (2)(a) covers a contract of reinsurance only so far as the
original contract of insurance would fall within subsection (2)(a).

(6) Subsection (7) applies in relation to an amount if—

(a) the CFC is resident in an EEA state for the accounting period,
20and

(b) the amount does not arise from the activities of a permanent
establishment which the CFC has in a territory which is not
an EEA state.

(7) An amount falls within this subsection so far as it derives (directly or
25indirectly) from a contract of insurance if—

(a) the insured has no significant UK non-tax reason for entering
into the contract of insurance, or

(b) if the contract of insurance is a contract of reinsurance, the
original insured has no significant UK non-tax reason for
30entering into the original contract of insurance.

(8) UK non-tax reason” means a reason other than one relating to a
liability, or potential liability, of any person to tax or duty imposed
under the law of the United Kingdom.

(8) In this section “original contract of insurance”, in relation to a
35contract of reinsurance which is one in a chain of contracts of
reinsurance, means the original contract of insurance reinsured by
the first contract in the chain; and in subsection (7)(b) the reference to
the original insured is to be read accordingly.

Chapter 8

The CFC charge gateway: solo consolidation

371HA 40 The basic rule

(1) The CFC’s profits falling within this Chapter for the purposes of step
2 in section 371BB(1) (the CFC charge gateway) are any amounts
included in its assumed total profits which are not also included in
the CFC’s relevant profits amount.

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(2) The CFC’s “relevant profits amount” is what the relevant profits
amount would be for the purposes of Chapter 3A of Part 2 of CTA
2009 (see section 18A(6) of that Act) in relation to the CFC were that
amount to be determined as if—

(a) 5the CFC were a permanent establishment in a territory
outside the United Kingdom of the UK resident company
mentioned in section 371CG(2)(b) or the UK resident bank
mentioned in section 371CG(3), and

(b) the CFC’s accounting period were a relevant accounting
10period of that UK resident company or UK resident bank for
the purposes of that Chapter.

Chapter 9

Exemptions for profits from qualifying loan relationships

371IA The basic rule

(1) This Chapter applies if—

(a) 15apart from this Chapter, Chapter 5 (non-trading finance
profits) would apply for a CFC’s accounting period,

(b) the CFC’s non-trading finance profits include qualifying loan
relationship profits, and

(c) the business premises condition set out in section 371DG is
20met.

(2) A chargeable company (“company C”) in relation to the accounting
period may make a claim to an officer of Revenue and Customs for
step 2 in section 371BB(1) (the CFC charge gateway) to be taken, in
the case of company C only, subject to this Chapter.

(3) 25If company C makes a claim, in the case of company C only, the
CFC’s qualifying loan relationship profits pass through the CFC
charge gateway so far as (and only so far as) they are not exempt
under this Chapter.

(4) The CFC’s “qualifying loan relationship profits” are the profits of all
30its qualifying loan relationships taken together.

(5) The extent to which those profits are “exempt” is to be determined—

(a) firstly, by applying either section 371IB or section 371ID to
each of the CFC’s qualifying loan relationships, and

(b) secondly, by applying section 371IE (if relevant).

(6) 35Section 371IF sets out how to determine the profits of a qualifying
loan relationship.

(7) Sections 371IG to 371II define “qualifying loan relationship” etc.

(8) Section 371IJ contains provision about claims under this Chapter.

(9) In this Chapter references to the CFC’s non-trading finance profits
40are to those profits excluding any profits—

(a) falling within section 371CB(3) or (4) or Chapter 8 (solo
consolidation), or

(b) arising from a relevant finance lease.

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(10) In this Chapter—

(a) “loan relationship” has the meaning given by section 302(1)
of CTA 2009 (and does not include anything which, although
not falling within section 302(1), is treated for any purpose as
5if it were a loan relationship), and

(b) other terms used which are defined in Part 5 of CTA 2009 are
to be read accordingly.

(11) See section 371CB(8) which deals with the interaction between this
Chapter and section 371CB and Chapter 5 in the case of a chargeable
10company which makes a claim under this Chapter.

371IB Loans 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) 15X% 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
20the 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
25relevant 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) 30the 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
35qualifying 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
40group 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
45(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,

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(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
5(“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
10of 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) 15a 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
20funded by the CFC, and

(b) which are not qualifying resources,

is no less than the amount of the debt mentioned in subsection (8).

(10) For the purposes of this section and section 371IC

(a) subject to subsections (11) and (12), “the CFC group”, as at
25any 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
30ultimate 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
35the 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) 40so 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”
45and “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

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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) 5before 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
10references 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.

371IC What is the “qualifying value” of “relevant pre-acquisition funds or
other assets”?

(1) 15This section applies for the purposes of section 371IB(7)(b).

(2) It applies if—

(a) a member of the CFC group acquires shares in a company
(“the target company”) from persons who are not members of
that group (“the unconnected persons”),

(b) 20in consideration for the acquisition of the shares, a member of
the CFC group (“the parent member”) which is not the 51%
subsidiary of any company issues shares to the unconnected
persons, and

(c) the value of the consideration given for the acquisition of the
25shares by the parent member and any other members of the
CFC group represents wholly or partly the value or a part of
the value of any funds or other assets held by the target
company.

(3) Those funds or other assets are “relevant pre-acquisition funds or
30other assets” and, subject to what follows, their value or the part of
their value represented by the value of the consideration is their
“qualifying value”.

(4) The qualifying value is to be reduced by Y% if one or both of the
following paragraphs applies—

(a) 35the issue of shares by the parent member to the unconnected
persons represents only part of the consideration given for
the acquisition of the shares in the target company;

(b) in connection with the acquisition of the shares in the target
company, an extraordinary distribution is made to persons
40holding shares in the parent member.

(5) “Y%” is given by the following formula—


where—

371ID The 75% exemption

(1) This section applies to a qualifying loan relationship if section 371IB
does not apply to the qualifying loan relationship.

(2) 1075% of the profits of the qualifying loan relationship are exempt.

371IE Matched interest

(1) This section applies if—

(a) there are profits of qualifying loan relationships (“the leftover
profits”) which are not exempt after either section 371IB or
15section 371ID has been applied to each qualifying loan
relationship,

(b) the relevant corporation tax accounting period (as defined in
section 371BC(3)) in relation to company C is a relevant
accounting period of company C in relation to a period of
20account of the worldwide group,

(c) the CFC’s accounting period ends in that period of account,
and

(d) apart from this section—

(i) the charging of a sum on company C at step 5 in
25section 371BC(1) would cause section 314A (financing
income amounts of chargeable companies) to apply in
the case of company C, and

(ii) the relevant finance profits (see section 314A(1)(d))
would include the leftover profits.

(2) 30All the leftover profits are exempt if, ignoring the relevant amounts,
the tested income amount for the period of account is equal to or
exceeds the tested expense amount for that period.

(3) Otherwise, Z% of the leftover profits are exempt if the relevant
amounts would cause the tested income amount for the period of
35account to exceed the tested expense amount for that period.

(4) “Z%” is given by the following formula—


where—

(5) 45“The relevant amounts” are—

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(a) the financing income amount for the period of account which
company C would have as a result of the application of
section 314A as mentioned in subsection (1)(d) so far as it
would include the leftover profits, and

(b) 5any other financing income amounts for the period of
account corresponding to the amount given by paragraph (a)
which members of the worldwide group who make claims
under this Chapter in relation to any CFC would have.

(6) For the purposes of subsection (5)(a) assume that company C’s
10financing income amount would include P% of the leftover profits.

(7) “P%” has the meaning given by section 371BC(3), subject to sections
371BG(3)(a) and 371BH(3)(b).

(8) Subject to what follows, terms used in this section which are defined
in Part 7 (tax treatment of financing costs and income) have the same
15meaning as they have in Part 7.

(9) In subsections (2) to (4) references to the tested income amount or the
tested expense amount are to that amount determined without
regard to any debits, credits or other amounts arising from UK
banking business or insurance business.

(10) 20But subsection (9) does not apply for the purpose of determining any
financing income amount under section 314A or affect the way in
which any such amount is to be taken into account in determining
the tested income amount or the tested expense amount.

(11) UK banking business or insurance business” means banking
25business or insurance business carried on by—

(a) a UK resident company, or

(b) a non-UK resident company acting through a UK permanent
establishment.

(12) Part 7 has effect for the purposes of this section with the following
30modifications.

(13) In section 261 (application of Part 7) the following are to be omitted—

(a) in subsection (1), the words from “for which” to the end, and

(b) subsections (2) to (5).

(14) Section 337(1)(a) (which limits “the worldwide group” to “large”
35groups) is to be omitted.

371IF Determining the profits of a qualifying loan relationship

Take the following steps to determine the profits of a qualifying loan
relationship for the purposes of this Chapter.

Step 1

40Determine the credits from the qualifying loan relationship which
are brought into account in determining the CFC’s non-trading
finance profits.

Step 2

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