»Ê¹ÚÌåÓýapp

»Ê¹ÚÌåÓýapp following example considers the application and interaction of TIOPA10/S371EB (UK activities), S371EC (capital investment from the UK) and S371ED (arrangements in lieu of dividends to UK resident companies) on a migration of a non-UK headed group into the UK and the subsequent changes made in the following years.

In this particular migration a new UK holding company is created by the shareholders in overseas ultimate parent company (“Old Parent�) exchanging their shares for shares in a new UK company (“UK Plc�).

»Ê¹ÚÌåÓýapp group has a Group Treasury division which has responsibility for:

• recommendations to the Board on significant external borrowings;
• decisions on how investment around the group is to be structured (loan capital or equity capital);
• reviewing and making decisions on applications by group companies to borrow either externally or intra-group;
• setting the terms of intra-group loans with more than a 12-month term;
• setting parameters for short-term intra-group deposits and borrowing;
• monitoring risks of default by intra-group borrowers;
• setting strategy for and monitoring hedging risks for the group and on individual loans, including interest rate and FOREX risk.

»Ê¹ÚÌåÓýapp Group Treasury is re-located to the UK post-migration.

Shortly after migration the external borrowings of Old Parent are replaced with new external borrowings by UK Plc. »Ê¹ÚÌåÓýapp new borrowings are slightly cheaper.

At the point of migration to the UK there are two existing intra-group loans. Loans 1 and 2 were made four years prior to the migration of the group to the UK. »Ê¹ÚÌåÓýappy were made to leverage overseas trading company (“Trading CFCâ€�) and a UK trading company (“UK Tradingâ€�), which were acquired by Old Parent a short time before. Old Parent borrowed externally to help fund those acquisitions - those borrowings being passed down to an overseas financing company (“Financing CFCâ€�) by way of equity. While Group Treasury has responsibility for the ongoing risks outlined above, in this case, neither of the loans requires hedging and the credit-worthiness of both borrowers is very strong throughout the term of the loans.

Financing CFC is a group financing company and has responsibility for:

• decisions on whether to lend to another group company (but only on the recommendation of Group Treasury);
• administration and monitoring of loans (for example ensuring interest payments are made on time).

Three years after the migration of the group to the UK, loans 1 and 2 are due to be repaid. Taking into account representations made by the debtor companies - Trading CFC (loan 1) and UK Trading (loan 2) - but also taking account of other factors relevant to the group, including its effective tax rate, Group Treasury decide the loans will be rolled-over on slightly different terms. It makes recommendations as such to the two borrowers and overseas financing company and fresh loans are made.