The measure

The Government has announced two changes to the Controlled Foreign Company (CFC) finance company exemption provisions.

The first change will stop UK companies which transfer profits from existing intra group lending out of the UK into an offshore CFC from benefiting from the CFC finance company exemption provisions.

The second change extends an existing finance company exemption anti-avoidance provision to stop groups benefitting from the exemption if funds borrowed in the UK are used "wholly or mainly" to repay non UK debt via an offshore CFC. This second change replaces "wholly or mainly" with "used to any extent" and hence strengthens the anti-avoidance provision.

Who will be affected?

Companies who have UK receivables that have not been transferred into an offshore finance company prior to 5 December 2013.

Companies who have borrowed in the UK to replace overseas borrowing via an offshore finance company who were not previously affected by the anti-avoidance rules.


The changes apply to companies that transfer receivables out of the UK on or after 5 December 2013. Companies that have transferred receivables prior to 5 December 2013 should not be affected.

The changes relating to companies that have entered into arrangements to borrow in the UK to replace overseas borrowing via an offshore finance company will be affected from 5 December 2013. If this is part way through an accounting period the period is split and profits apportioned between the two periods.

Our view

Whilst it was acknowledged by Government and HMRC that it was possible to transfer UK receivables out of the UK, they expressed surprise at the amount of debt actually transferred. This, along with the negative press circulating about Government policy in this area, means that although not previously consulted on, it is not a surprise there has been a change in policy. The change also deals with issues in relation to the interaction of the unallowable purposes provisions with the finance company exemption.

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