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

Loans funded out of qualifying resources

Section 371IB sets out the rules for determining what proportion of a controlled foreign company's profits from a qualifying loan relationship can be exempted from a CFC charge where the loan is funded from qualifying resources.

• A claim must be made specifying the percentage (X%) of profits to be exempted, supported by evidence that at least X% of the loan principal was funded from qualifying resources throughout the relevant period and that the ultimate borrower remained resident in a single territory
• Qualifying resources are funds that place no demand on group resources outside the borrower's territory — including local business profits of the CFC group, proceeds from non-redeemable ordinary shares issued externally by the group's ultimate parent, and the qualifying value of certain pre-acquisition assets
• Where the qualifying loan relationship is connected with an arrangement under which a CFC group member takes on debt in the UK, the amount treated as funded from non-qualifying resources is assumed to be at least equal to that UK debt — though exceptions exist for loans repaid within 48 hours or within six months out of qualifying share issue proceeds
• The CFC group for these purposes comprises the CFC and its connected companies, extended to include predecessor connected companies of the UK controllers for periods before the CFC joined the group

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