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

What is a "qualifying loan relationship"?

Section 371IG defines what counts as a "qualifying loan relationship" of a controlled foreign company (CFC), including rules for tracing through chains of loans to identify the ultimate debtor.

• A qualifying loan relationship is one where the CFC is the creditor, the ultimate debtor is a qualifying company (connected with the CFC and controlled by the same UK residents), and no exclusion under section 371IH applies.
• The ultimate debtor is normally the immediate borrower, but where a loan is on-lent to another person who does not further on-lend it, that end recipient becomes the ultimate debtor instead.
• Where only part of a loan is used to fund an onward loan, that part is treated as a separate loan with its own ultimate debtor, so a single loan can give rise to two qualifying loan relationships with different ultimate debtors.
• The look-through tracing rule does not apply where the immediate borrower is a qualifying company whose main business is banking or insurance, the on-lending occurs in the ordinary course of that business, and the end recipient is not a UK-resident qualifying company.