Commentary

D4.432 CFC gateway: definition of qualifying loan relationship

Corporate tax
Corporate tax | Commentary

D4.432 CFC gateway: definition of qualifying loan relationship

Corporate tax | Commentary

D4.432 CFC gateway: definition of qualifying loan relationship

As detailed in D4.431, chargeable company may make a claim for exemption of certain intra-group non-trading finance profits that would otherwise pass through the CFC charge gateway because they fall within D4.427. In order to make this claim the profits must arise from qualifying loan relationships (QLR) and the business premises condition at TIOPA 2010, s 371DG (D4.426) must also be met. For these purposes a QLR is, in brief, a loan relationship where the CFC is creditor, the ultimate debtor is a company connected with the CFC (not within the charge to UK tax in respect of the debt payments) and controlled by the same UK resident persons who controls the CFC1. There are exclusions as follows2:

  1.  

    (a)     if the ultimate debtor is a non-UK resident company, the creditor relationship cannot be treated as a QLR if some or all of the company debits are being bought into account either as profits of a UK permanent establishment of non-UK resident company3 or as property income of a UK property business4

  2.  

    (b)     if the ultimate debtor is a UK resident company a credit can only be bought into account as a credit in respect of a QLR if a foreign profits election is in place (D4.801)5 and all the company's debits are bought into account for the purposes of determining exemption adjustment6

  3.  

    (c)     if the ultimate debtor is another CFC to which the gateway (D4.425–D4.431) or the low profit exemption rules (D4.413)

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