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

Category B income

Section 371KG defines "Category B income" for a controlled foreign company (CFC), which captures non-trading income that benefits from notional interest deductions in the CFC's territory that would not be available under UK corporation tax rules.

• Category B income consists of notional interest amounts (representing deemed interest expenses or financing charges calculated by reference to the CFC's equity or debt) that are deducted from the CFC's relevant income for local tax purposes but would not be deductible under UK corporation tax assumptions.
• The amount of Category B income is capped at the CFC's "relevant non-local income" — that is, the gross amount of non-trading income received directly or indirectly from persons or permanent establishments outside the CFC's territory.
• "Relevant income" has the same meaning as in section 371KE, which defines the CFC's income for the purposes of the excluded territories exemption.
• Relevant non-local income is measured on a gross basis, meaning before deduction of expenses or transfers to or from reserves, and excludes income sourced from within the CFC's own territory.