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

Qualifying loan relationships

Section 371FB adjusts a CFC's free capital or free assets upwards where the CFC has borrowed from a connected CFC and the lending CFC's profits on that loan are wholly or partly exempt under Chapter 9.

• Where a CFC borrows from a connected CFC under a qualifying loan relationship, and the lender's profits on that loan are exempt under Chapter 9, the borrowing CFC's free capital or free assets are increased proportionately.
• The proportion added (E%) is calculated as the exempt profits of the qualifying loan relationship divided by total profits of that relationship, expressed as a percentage, and this percentage is then applied to the outstanding loan principal.
• Profits are measured over the creditor CFC's accounting periods that overlap with the borrowing CFC's accounting period, with time apportionment where periods only partly overlap.
• The exempt amount is determined separately for each chargeable company making a Chapter 9 claim, by identifying the exempt portion and multiplying it by that company's relevant percentage share (P%) as defined in section 371BC(3).