CFM92010 | Debt cap: intra-group short-term debt: introduction

This guidance applies to worldwide group periods of account ending before or straddling 1 April 2017.

Overview of short-term debt

TIOPA10/PT7/CH7 includes provisions that allow particular expenses, income or both of particular companies not to be treated as financing expenses amounts or financing income amounts. These exemptions can be grouped into three broad categories:

• Exclusion for intra-group short-term debts

• Exemptions relating to particular sorts of company, and

• Exclusions where companies have stranded non-trading loan relationships deficits or management expenses.

This section of the guidance deals with the first of these categories. Guidance on the exemption for group treasury companies and for other particular types of company is at CFM92500 onwards, and on stranded reliefs at CFM92200 onwards.

In broad outline, groups may elect to exclude an amount of intra-group finance expense from a calculation of a relevant group company’s net financing deduction (see CFM91030) where the underlying debt is short-term.

This exclusion is intended to help groups where its member companies have short-term borrowing requirements or surplus cash to deposit for a short period of time, for example as part of cash pooling arrangements. Short-term for the purposes of Part 7 is 12 months or less.

The provisions cover:

• The conditions under which intra-group finance expense (and the corresponding amount of finance income) in respect of short-term finance is excluded from the debt cap calculations (see CFM92020)

• The circumstances where a fixed term single finance arrangement or a floating term single finance arrangement can be treated as short-term finance (see CFM92050 et seq)

• The treatment of revolving intra-group finance facilities (see CFM92090)

• The exclusion of finance arrangements serving a long-term funding purpose from being treated as short-term debt (CFM92110), and

• Anti-avoidance rules to prevent arrangements that are, in reality, long-term from being presented as short-term debt (see CFM92140).

The relevant legislation is at TIOPA10/S319 to S321, and in The Corporation Tax (Exclusion from Short-term Loan Relationships) Regulations 2009 (SI 2009/3313).