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)
371IEMatched 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 section 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 account 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 section 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
All 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 account to exceed the tested expense amount for that period.
4
“Z%” is given by the following formula—
where—
E is the amount of the excess which would be caused by the relevant amounts,
I is the amount of any increase in the tested income amount which would be caused by the relevant amounts, and
R is the amount of any reduction in the tested expense amount which would be caused by the relevant amounts.
5
“The relevant amounts” are—
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
any 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 financing 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 meaning 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
But 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 business 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 modifications.
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” groups) is to be omitted.
Pt. 9A inserted (17.7.2012) by Finance Act 2012 (c. 14), Sch. 20 para. 1 (with ss. 56-58)