Miscellaneous
31.Paragraph 15 substitutes new section 236(4) in TIOPA. It ensures condition B is brought into line with the introduction of Part 9A TIOPA. Condition B, which assists in determining whether the scheme is a deduction scheme for the purposes of the arbitrage rules, shall not be failed solely because the profits of the company in question are treated as taxable on another person by a rule in a territory outside the UK, which is similar to Part 9A TIOPA.
32.Paragraph 16 introduces further amendments to Part 9A TIOPA.
33.Paragraph 17 substitutes new sections 371CE(4) and (5) in TIOPA that determine when a CFC is a group treasury company.
34.New sections 371CE(4)(a) and (b) set out the conditions for a CFC to be a group treasury company. It does this by reference to section 316 TIOPA, as amended by Finance Act 2013 and therefore maintains the alignment of the definition of a group treasury company between the Worldwide Debt Cap rules (see Part 7 TIOPA) and Part 9A TIOPA. While new section 371(4)(a) applies the conditions in new section 316(2), sections 316(9) to (11) are read through as a consequence.
35.New sections 371CE(5)(a) and (b) modify the application of new section 316(2) for the purpose of defining a group treasury company for the purposes of Part 9A TIOPA. New section 371CE(5)(a) removes the need, as it is not relevant for the purposes of the CFC rules, for an election under new section 316(2)(d) to be made. The Worldwide Debt Cap rules only apply to groups that are large. New section 371CE(5)(b) removes this restriction, in order for a group that is not large to be able to issue a notice under section 371CE(2).
36.Paragraph 18 introduces paragraphs 19 and 20 which contain amendments to Chapter 9.
37.Paragraph 19 inserts new sections 371IB(9A)-(9D). New section 371IB(9A) switches off in two sets of circumstances the limitation to what are qualifying resources provided by section 371IB(9). That rule limits the amount of qualifying resources where the qualifying loan relationship is part of an arrangement that results in an increase in debt in the UK of members of the group.
38.New section 371IB(9B) sets out the conditions for the first set of circumstances and switches off section 371IB(9) when any UK debt identified by section 371IB(8) is repaid within 48 hours of it being made.
39.New section 371IB(9C) provides a purpose based test which stops the application of new section 371IB(9B), where arrangements are made to effectively extend the relaxation of section 371IB(9) beyond 48 hours, or where the main purpose of the loan is to obtain the relaxation of section 371IB(9). It applies where the loan repayment occurs under, or is connected (directly or indirectly) with, an arrangement which has as its main purpose, or one of its main purposes, to ensure the section 371IB(9) restriction does not apply because of:
the loan, or
any other debt which a member of the CFC group incurs (or is expected to incur) in the UK.
40.New section 371IB(9D) sets out the conditions for the second set of circumstances where section 371IB(9) won’t apply to limit the level of qualifying resources. It applies where an amount of short-term debt is repaid out of the proceeds of the issue of ordinary non-redeemable shares by the parent company to persons who are not members of the CFC group.
41.New sections 371IB(9D)(a) – (d) set out the conditions for switching off section 371IB(9) in those circumstances. These are:
there must be an issue of shares that meets the requirements of sections 371IB(7)(c)(i)-(iii);
there must be an expectation that the UK debt incurred before the issue of those shares, would be repaid by the company from the funds derived (directly or indirectly) from the issue of those shares;
that the above repayment is made within 6 months from the day on which the loan is incurred, and
the loan was neither made by a person who was a member of the CFC group, nor was it (wholly or partly and directly or indirectly) funded by a member of the CFC group.
The final condition ensures that new section 371IB(9D) only applies where the short-term funding has been provided by a third party and not as part of an arrangement whereby some or all of the funding is provided by the CFC group.
42.Paragraph 20 amends the matched interest rules at section 371IE.
43.Paragraph 20(2) amends the condition at section 371IE(1)(d)(ii). It ensures that the condition will be met where, if it were not for the application of section 371IE, some or all of the leftover profits within section 371IE are treated, by section 314A(1)(d), as relevant finance profits for the purposes of the Worldwide Debt Cap. This in turn ensures that the amount of leftover profits that can be exempted by the matched interest rule is not limited to only those profits that are treated as financing income amounts by section 314A. This will mean for example that the loan relationship credit from a FOREX gain that forms part of a CFC’s non-trading finance profits can potentially be exempted under the matched interest rule.
44.Paragraph 20(3) inserts new section 371IE(7A). This makes clear that the amounts of leftover profits referred to in section 371IE(6) shall only include the leftover profits that fall to be included in the relevant finance profits amount of section 314A(1)(d). This ensures that the calculation of the proportion of leftover profits that can exempted under the matched interest rule is made using only those leftover profits that would otherwise be treated as financing income amounts under section 314A.
