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

Determining the profits of a qualifying loan relationship

Section 371IF sets out a five-step method for calculating the profits of a qualifying loan relationship held by a controlled foreign company (CFC), taking into account related hedging arrangements, funding costs, and allowable deductions.

• Start with the credits from the qualifying loan relationship included in the CFC's non-trading finance profits, then adjust for any hedging gains or losses directly connected with that loan relationship.
• Add a fair proportion of credits from any debtor relationships the CFC uses to fund the qualifying loan, plus any hedging gains or losses on those funding arrangements.
• Deduct a fair proportion of debits from the CFC's loan relationships and any non-trading deficit relief amounts set off against non-trading finance profits.
• The final result after all five steps represents the profits of the qualifying loan relationship for the purposes of the CFC charge provisions.