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Chapter INTM503070

Document Cited in Related
Vincent
Published date09 April 2016
Record NumberINTM503070
CourtHM Revenue & Customs
IssuerHM Revenue & Customs

A full functional and factual analysis should concentrate on identifying the exact functions performed and risks borne in relation to any finance transactions.

The factual and functional analysis should start with the formal agreements relating to the operations of the treasury or group finance company. Then the caseworker should examine any other relevant documents, including less formal items such as emails which shed light on the arrangements, and look at the behaviour of both parties to the transactions to test whether the services which the treasury of group finance company has legally contracted to provide and the risks allocated are the same as those which it has in fact provided and borne. Particular care should be taken to consider whether the service agreements cover all the services provided.

The aim of the functional analysis is to establish

  • the nature and level of complexity of the cash management function
  • the terms on which the company borrows, whether from third parties or affiliates, and the terms on which it lends to affiliates
  • the risks borne by the treasury or group finance company on its borrowing and lending activities (including forex, interest rate risks and credit risk)
  • how and by whom the risks are managed (processes and costs)
  • what risks the treasury or group finance company manages on behalf of other group companies (as a service, not as risks taken on). For example, the finance company may advise fellow group companies on managing financial risks. The treasury or group finance company may also provide services to other...

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