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

Arrangements in lieu of dividends etc. to UK resident companies etc.

Section 371ED brings certain non-trading finance profits of a controlled foreign company (CFC) within the CFC charge where those profits arise from arrangements that substitute for dividend payments to connected UK companies, and the substitution is motivated by tax considerations.

• Non-trading finance profits are caught where they arise from arrangements made by a CFC, directly or indirectly, with a connected UK resident company or with a connected non-UK resident company's UK permanent establishment.
• A typical arrangement would be a loan from the CFC to a connected UK company, but indirect arrangements — such as a loan routed through an intermediary — are also caught.
• The profits fall within this section only if it is reasonable to suppose that the arrangement was made as an alternative to the CFC paying dividends or making other distributions to the connected company.
• It must also be reasonable to suppose that a main reason for choosing the arrangement over a dividend or distribution relates to a tax or duty liability (or potential liability) of any person, in any territory.

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