Background
53.The new CFC rules at Part 9A TIOPA (introduced in Finance Act 2012) better reflect the way that businesses operate in a global economy whilst maintaining adequate protection against artificial diversion of UK profits. This Schedule amends Part 9A in order to ensure the CFC rules operate as intended and continue to protect the UK's corporation tax base. It also amends Part 2 of TIOPA to limit the amount of double tax relief available to UK companies where they are involved in certain financing arrangements involving CFCs.
54.The Schedule addresses two tax planning opportunities, and in addition makes six minor consequential amendments to provide consistency of interpretation and to ensure the CFC rules operate as intended. The amendments:
expand the definition of ‘relevant finance lease’ within Part 9A, to ensure certain hire purchase business is within scope of the new CFC rules and so that the definition applies to any asset (other than an asset which would be a loan relationship);
limit the amount of double taxation relief that can be claimed by UK companies that form part of certain arrangements involving the routeing of a loan from one CFC to another CFC through one or more UK companies;
ensure that references to the interpretation of certain accounting practices in Part 9A are consistent; and
introduce a minor consequential amendment to the arbitrage anti-avoidance rules in Part 6 of TIOPA.
make changes to the matched interest rule at section 371IE TIOPA to ensure that the leftover profits that can be exempted under that rule are not restricted to only those profits that would otherwise be subject to section s314A TIOPA. This will ensure for example that where the leftover profits include a FOREX gain, that gain can be included in the profits exempted.
make a minor consequential amendment to the CFC regime’s definition of group treasury companies. This brings the CFC definition in line with the wider changes to the Worldwide Debt Cap definition of group treasury companies at section 316 TIOPA.
relax the UK debt restriction rule applied to qualifying resources within section 371IB(9) TIOPA for two types of UK debt arrangements. These are:
UK debt incurred and repaid as part of arrangements which are, or are similar to, ‘daylight facilities’, defined as debt repaid within 48 hours, and
UK debt incurred, that is required as short term bridging finance, from a person who was not a member of the CFC group. The debt must not be funded (wholly or partly and directly or indirectly) by a member of the CFC group. The debt must also be expected to be repaid from a subsequent rights issue within section 371IB(7)(c)(i)–(iii) and that the expected repayment must take place within 6 months of the loan being taken out.
