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This guidance applies to worldwide group periods of account ending before or straddling 1 April 2017.

Exemption of financing income amounts of controlled foreign companies (CFCs) � CFC accounting periods beginning on or after 1 January 2013 {#}

Under the ‘new� CFC rules, applicable to CFC accounting periods beginning on or after 1 January 2013, the risk of adjustment arising under both the debt cap and the CFC rules is eliminated by TIOPA10/S314A. This operates to permit certain financing income amounts of CFCs to be exempted. It is supplemented by ‘machinery� provisions inserted into TIOPA10/PT7 by SI 2012/3045.

Conditions

»Ê¹ÚÌåÓýapp CFC accounting period in which an exemption may arise is the one that ends in the period of account of the worldwide group.

»Ê¹ÚÌåÓýapp starting point for an adjustment is that there would be a CFC charge for the accounting period of the CFC and the chargeable profits would include “relevant finance profitsâ€�.

Relevant finance profits are amounts that:

• falls within Chapter 5 (non-trading finance profits gateway) or Chapter 6 (trading finance profits gateway), or profits from ‘qualifying loan relationshipsâ€� falling within Chapter 9 of the CFC rules;
• are loan relationships profits; and
• must not be ‘excluded creditsâ€� (in essence because they are not interest or similar to interest â€� see CFM91230).
• »Ê¹ÚÌåÓýapp amount taken into account as a financing income amount is not reduced by any exemption, as described below, arising from the operation of the debt cap â€� S314A(3A).

Effect

Where there are CFC profits within the description above, ‘P%� of these ‘relevant finance profits� of the CFC may be treated as financing income amounts. P% is the percentage of the CFC’s chargeable profits that are apportioned to a chargeable company in the worldwide group - see TIOPA10/S371BC(3).

»Ê¹ÚÌåÓýappre are specific procedural requirements for allocation of an exemption to a CFC which are set out at S292(5), (5A) and (5C) â€� the mechanics described at CFM91300+ only apply to amounts apportioned to companies directly with the charge to Corporation Tax. »Ê¹ÚÌåÓýapp exemption is applied in re-computing the CFC charge, at step 5 in S371BC, by reducing the relevant finance profits of the CFC and, to a just and reasonable extent, any creditable tax â€� S298A(2) and (3).