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

Matched interest

Section 371IE provides a further exemption for CFC loan relationship profits by reference to the worldwide group's net tax-interest expense, effectively exempting profits to the extent they are "matched" by interest costs elsewhere in the group.

• After applying the qualifying resources exemption and the 75% exemption, any remaining qualifying loan relationship profits may benefit from the matched interest exemption, provided the CFC's accounting period falls within a period of account of a worldwide group.
• The "matched interest profits" are those remaining profits after stripping out excluded credits and excluded debits (as defined for corporate interest restriction purposes), and if the group's aggregate net tax-interest expense for the period is nil, all of the matched interest profits are fully exempt.
• Where the group does have a net tax-interest expense, a limited exemption applies if the relevant proportion of matched interest profits apportioned to relevant UK chargeable companies exceeds that expense — the exemption fraction is the excess divided by the relevant proportion of matched interest profits.
• The group's aggregate net tax-interest expense is calculated under the corporate interest restriction rules but excluding amounts arising from banking business or insurance business carried on by companies within the charge to corporation tax.