Commentary

D4.427 CFC gateway: non-trading finance profits

Corporate tax
Corporate tax | Commentary

D4.427 CFC gateway: non-trading finance profits

Corporate tax | Commentary

D4.427 CFC gateway: non-trading finance profits

It is necessary to firstly establish in what situations this gateway test applies and then if it does, the extent to which profits pass through the gateway. Only profits which pass through the gateway are potentially liable to the CFC charge.

Establishing whether the test applies

This gateway test applies if the CFC has non-trading finance profits 1 but this is subject to an incidental non-trading finance profit safe harbour amount of up to 5% (see below).

Non-trading finance profits are defined as profits from loan relationships which would be chargeable to corporation tax under CTA 2009, s 299 (D1.701) and non-exempt distributions within CTA 2009, Pt 9A (Division D5.1). Non-trading finance profits also include profits arising from a relevant finance lease2.

Specifically excluded from the definition of non-trading finance profits (for the purposes of this gateway test) are profits which arise from the investment of funds held for the purposes of a trade if that trade is carried on by a CFC and no profits of that trade for the accounting period pass through the CFC charge gateway3. Also profits which arise from the investment of funds held by the CFC for the purposes of its UK or overseas property business are similarly excluded4. These exclusions do not apply however to non-trading finance profits arising from funds held5:

  1.  

    (a)     because of a prohibition or restriction on the payment of dividends imposed under the law of the CFC's territory of incorporation, its articles of association

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