Taxation (International and Other Provisions) Act 2010 section 371CC

Incidental non-trading finance profits: the 5% rule

Section 371CC provides a de minimis exemption from the CFC charge on non-trading finance profits where those profits are small relative to the CFC's main trading, property or holding company income.

• A CFC can escape the non-trading finance profits charge (Chapter 5) if its non-trading finance profits are no more than 5% of a "relevant amount" based on its trading profits, property business profits, or exempt distribution income
• The section applies only where the CFC has trading or property business profits, or where it holds shares in 51% subsidiaries and receives exempt distribution income (dividends excluded from its assumed total profits because they would be exempt under corporation tax rules)
• Where the CFC is a holding company with 51% subsidiary CFCs that themselves benefit from this exemption (or the related further 5% rule in section 371CD), the non-trading finance profits of those subsidiaries must be added to the parent CFC's non-trading finance profits before testing against the 5% threshold
• Trading profits used in the calculation are measured before deducting interest, tax or duty, and exclude any trading profits that are already caught by the CFC charge gateway for the accounting period