INTM219270 - Controlled Foreign Companies: The CFC Charge Gateway Chapter 9 - Exemptions for profits from Qualifying Loan Relationships: Matched Interest Rule: Applying the exemption: Example 2
Example
A group has six UK companies that have interest receipts and interest deductions. Two UK companies, F and G, are chargeable companies and have leftover profits (i.e. NTFPs from QLRs that are not exempt by virtue of sections 371IB or 317ID) that will be subject to a CFC charge, subject to the application of the matched interest rule.
The relevant finance income amounts and finance expense amounts of the six UK companies are set out in the table below. The second part of the table includes the finance income that would be taken into account under section314A TIOPA if the leftover profits are apportioned to the UK companies F and G.
Note that the finance expense of 拢20尘 payable by company G is included twice in the table, to better demonstrate an example where the apportionment of leftover profits would affect both the tested expense amount (TEA) and tested income amount (TIA). However the amount is only included once in the calculation of the TEA.
| - | Finance Income | Finance Expense | Net FI or FE | Part of TEA | Part of TIA |
|---|---|---|---|---|---|
| Company A | (拢20尘) | 拢60尘 | 拢40尘 | 拢40尘 | Nil |
| Company B | - | 拢100尘 | 拢100尘 | 拢100尘 | Nil |
| Company C | (拢100尘) | - | (拢100尘) | Nil | 拢100尘 |
| Company D | (拢10尘) | - | (拢10尘) | Nil | 拢10尘 |
| Company E | (拢75尘) | 拢80尘 | 拢5尘 | 拢5尘 | Nil |
| Company G | - | 拢20尘 | 拢20尘 | 拢20尘 | Nil |
| Total TIA & TEA | - | - | - | 拢165尘 | 拢110尘 |
| TEA-TIA | - | - | - | 拢55尘 | - |
| Applying s314A | - | - | - | - | - |
| Company F | (拢60尘) | - | (拢60尘) | Nil | 拢60尘 |
| Company G | (拢15尘) | 拢20尘 | 拢5尘 | (拢15尘) | Nil |
| Adjusted TIA & TEA amounts | - | - | - | 拢150尘 | 拢170尘 |
| TEA-TIA | - | - | - | (拢20尘) | - |
E is the amount by which the total of the leftover profits (拢75尘) apportioned to the chargeable companies in the groupwould cause the TIA to exceed to TEA (拢20尘)
I is the amount by which the figure of TIA would be increased through the apportionmentof the leftover profits to the UK chargeable companies in the group (拢60尘).
R is the amount by which the figure for TEA would be described through the apportionment of the leftover profits to the UK chargeable companies in the group (拢15尘).
Z% = 100% x E/I+R
Z% = 100% x 拢20尘/拢60尘 + 拢15m; and so Z% = 26.67%
Company F has leftover profits of 拢60尘 and so 26.67% of those profits - 拢16m - are exempt under section 371IE.
Company G has leftover profits of 拢15m and so 26.67% of those profits - 拢4 - are exempt under section 371IE.