CFM33090 - Loan relationships: Core rules: non-UK companies

CTA09/S309

Non-UK companies

Companies that are not incorporated in the UK may nevertheless have to submit returns to HMRC either because

  • the company is tax resident in the UK, or
  • it trades in the UK through a permanent establishment.

In addition, if a company is a controlled foreign company, its chargeable profits may need to be computed for UK tax purposes.

Such companies, or permanent establishments, may draw up accounts using International Accounting Standards, particularly if they are incorporated in another EU country. But others will draw up accounts in accordance with accepted accounting practice in their country of incorporation. For example, a company incorporated in a state of the USA may use US GAAP.

As explained in CFM33080, where a company does not apply GAAP-compliant accounts, the loan relationship rules are applied as if GAAP-compliant accounts had been prepared.

Here, the normal approach to the interpretation of deeming provisions applies - the company must treat the deemed circumstances as if they were real and follow through the consequences.

Example

A non-UK bank trades in the UK through a branch. The branch draws up accounts for year ended 31 December 2022 using an accounting policy that is neither IAS nor UK GAAP. The branch must therefore compute its profits or losses on loan relationships (as well as its trading profits, derivative contract profits and other items) based on GAAP on the basis of accounts following UK GAAP.

Under CTA09/S21, the profits attributable to the branch are those that it would have made if it were a distinct and separate company, trading under the same conditions, and dealing with the non-resident company on an arm’s length basis. Equity and loan capital will be attributed to the branch on that assumption (see International Manual INTM267000+).

In preparing its Corporation Tax computations on the basis of UK GAAP, the branch must decide whether the imagined stand-alone company would use FRS 101 or FRS 102.

Further guidance

CFCs: Assumed Taxable Total Profits (INTM239000)