Section 371DI | Exclusion: trading profits (management expenditure condition) ^F1

(1)This section applies for the purposes of section 371DF(1)(c).

(2)The management expenditure condition is met if the UK related management expenditure is no more than 20% of the total related management expenditure.

(3)“The total related management expenditure” is the total of the following expenditure incurred during the accounting period by the CFC—

(a)expenditure incurred in the employment of any member of the CFC's staff who carries out relevant management functions,

(b)expenditure incurred in the engagement (directly or indirectly) of any individual who is not a member of the CFC's staff but who carries out relevant management functions in consequence of an arrangement between the individual and the CFC, and

(c)expenditure incurred in the engagement (directly or indirectly) of any company related to the CFC so far as the expenditure represents expenditure incurred by the related company in—

(i)the employment of any member of the related company's staff who carries out relevant management functions, or

(ii)the engagement by the related company (directly or indirectly) of any individual who is not a member of the related company's staff but who carries out relevant management functions in consequence of an arrangement between the individual and the related company.

(4)“The UK related management expenditure” is the total related management expenditure so far as it relates to members of staff or other individuals who carry out relevant management functions in the United Kingdom.

(5)A person carries out a “relevant management function” if the person manages or controls any assets or risks included in the relevant assets and risks.

(6)This covers (for example) a person who formulates plans or makes decisions in relation to—

(a)the acquisition, creation, development or exploitation of such assets, or

(b)the taking on, or bearing, of such risks.

(7)Subsection (8) applies if—

(a)the conditions mentioned in section 371DF(1)(a), (b), (d) and (e) are met but the management expenditure condition is not met,

(b)there is an asset or risk which is included in the relevant assets and risks and to which any part of the total related management expenditure relates,

(c)the 50% condition is met in relation to that asset or risk, and

(d)trading profits arising from that asset or risk are included in the provisional Chapter 4 profits.

(8)The trading profits are to be excluded from the provisional Chapter 4 profits.

(9)The 50% condition is met in relation to an asset or risk if the UK related management expenditure so far as relating to the asset or risk is no more than 50% of the total related management expenditure so far as relating to the asset or risk.

(10)Subsection (11) applies if—

(a)any part of the total related management expenditure relates to a number of assets or risks included in the relevant assets and risks, and

(b)it is not reasonably practicable to separate those assets or risks for the purpose of determining the extent to which the total related management expenditure relates to each of those assets or risks separately.

(11)Subsections (7) to (9) apply in relation to those assets or risks taken together and references to an asset or risk are to be read accordingly.