Corporation Tax Bill

House of Commons

Session 2008 - 09
Internet Publications
Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 5 — Connected companies relationships: introduction and general
158

(a)
the relevant loan relationship is a creditor relationship,
(b)
the transferee has a hedging relationship between a derivative contract
and the creditor relationship, and
(c)
because of section 632(2)(a) and (b) (transferee leaving group because
of exempt distribution) a credit is to be brought into account by the
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transferee for the purposes of Part 7 (derivative contracts) in respect of
the derivative contract.
(5)
Section 707 (meaning of “hedging relationship”) applies for the purposes of
this section.
Disapplication of Chapter where transferor party to avoidance
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347
Disapplication of Chapter where transferor party to avoidance
(1)
This Chapter does not apply in the cases mentioned in—
(a)
section 336 (transfers of loans on group transactions), and
(b)
section 337 (transfers of loans on insurance business transfers),

if conditions A and B are met.
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(2)
Condition A is that the transferor is a party to arrangements in accordance with
which there is likely to be a transfer of rights or liabilities under the loan
relationship by the transferee to another person in circumstances in which
section 336 or 337 would not apply.
(3)
Condition B is that the purpose or one of the main purposes of the
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arrangements is to secure a tax advantage for the transferor or a person
connected with it.
(4)
This Chapter does not apply in relation to a disposal in the cases mentioned in
subsection (1) if section 455 (disposals for consideration not fully recognised by
accounting practice) applies in relation to the disposal.
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(5)
In this section—
“arrangements” includes any scheme, agreement, understanding,
transaction or series of transactions, and
“transfer” includes any arrangement which equates in substance to a
transfer (including any acquisition or disposal of, or increase or
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decrease in, a share of the profits or assets of a partnership).
Chapter 5
Connected companies relationships: introduction and general
348
Introduction: meaning of “connected companies relationship”
(1)
This Chapter contains some general rules relating to connected companies
35
relationships.
(2)
For the purposes of this Part a debtor relationship of a company is a connected
companies relationship if there is a connection between—
(a)
the company, and
(b)
another company standing in the position of a creditor as respects the
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debt in question.

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 5 — Connected companies relationships: introduction and general
159

(3)
For the purposes of subsection (2) a company is treated as standing in the
position of a creditor if it indirectly stands in that position by reference to a
series of loan relationships or relevant money debts.
(4)
For the purposes of this Part a creditor relationship of a company is a connected
companies relationship if there is a connection between—
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(a)
the company, and
(b)
another company standing in the position of a debtor as respects the
debt in question.
(5)
For the purposes of subsection (4) a company is treated as standing in the
position of a debtor if it indirectly stands in that position by reference to a series
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of loan relationships or relevant money debts.
(6)
For the purposes of this Part, if a loan relationship is a connected companies
relationship at any time in an accounting period, it is treated as being such a
relationship for the period.
(7)
In this section “relevant money debt” means a money debt which would be a
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loan relationship if a company directly stood in the position of creditor or
debtor.
(8)
Section 466 (companies connected for an accounting period) applies for the
purposes of this section.
349
Application of amortised cost basis to connected companies relationships
20
(1)
This section applies if a loan relationship is a connected companies relationship
for an accounting period.
(2)
The credits and debits which are to be brought into account for the purposes of
this Part in respect of the relationship for the period are determined on an
amortised cost basis of accounting.
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(3)
Subsection (2) does not apply if section 454(4) (which requires fair value
accounting to be applied to reset bonds etc) applies.
(4)
See also section 534(8) (which disapplies this section where the requirement to
apply fair value accounting under section 534(1) applies).
350
Companies beginning to be connected
30
(1)
This section applies if—
(a)
a company’s loan relationship becomes a connected companies
relationship, and
(b)
as a result of the application of section 349 the company—
(i)
brings into account credits or debits determined in accordance
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with fair value accounting for one accounting period (“the
earlier period”), and
(ii)
brings into account credits or debits determined in accordance
with an amortised cost basis of accounting for the next
accounting period (“the later period”).
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(2)
If—
(a)
the fair value of a relevant asset at the end of the earlier period (“FVA”),
exceeds

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 5 — Connected companies relationships: introduction and general
160

(b)
the cost of the asset which would be given at that time on an amortised
cost basis of accounting (“ACA”),

the excess must be brought into account for the later period as a debit for the
purposes of this Part.
(3)
If ACA exceeds FVA, the excess must be brought into account for the later
5
period as a credit for the purposes of this Part.
(4)
If—
(a)
the fair value of a relevant liability at the end of the earlier period
(“FVL”), exceeds
(b)
the cost of the liability which would be given at that time on an
10
amortised cost basis of accounting (“ACL”),

the excess must to be brought into account for the later period as a credit for
the purposes of this Part.
(5)
If ACL exceeds FVL, the excess must to be brought into account for the later
period as a debit for the purposes of this Part.
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351
Companies ceasing to be connected
(1)
This section applies if—
(a)
a company’s loan relationship ceases to be a connected companies
relationship, and
(b)
as a result of section 349 ceasing to apply the company—
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(i)
brings into account credits or debits determined in accordance
with an amortised cost basis of accounting for one accounting
period (“the earlier period”), and
(ii)
brings into account credits or debits determined in accordance
with a fair value basis of accounting for the next accounting
25
period (“the later period”).
(2)
If—
(a)
the fair value of a relevant asset at the end of the earlier period (“FVA”),
exceeds
(b)
the cost of the asset which would be given at that time on an amortised
30
cost basis of accounting (“ACA”),

the excess must be brought into account for the later period as a credit for the
purposes of this Part.
(3)
If ACA exceeds FVA, the excess must be brought into account for the later
period as a debit for the purposes of this Part.
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(4)
If—
(a)
the fair value of a relevant liability at the end of the earlier period
(“FVL”), exceeds
(b)
the cost of the liability which would be given at that time on an
amortised cost basis of accounting (“ACL”),
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the excess must be brought into account for the later period as a debit for the
purposes of this Part.
(5)
If ACL exceeds FVL, the excess must be brought into account for the later
period as a credit for the purposes of this Part.

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 6 — Connected companies relationships: impairment losses and releases of debts
161

352
Disregard of related transactions
(1)
This section applies in an accounting period if—
(a)
section 349 applies in respect of a creditor relationship of a company for
the period, and
(b)
a related transaction takes place in relation to the relationship in the
5
period.
(2)
The credits brought into account in respect of the relationship for the period for
the purposes of this Part must not be less than they would have been if—
(a)
the transaction had not taken place, and
(b)
no amounts had accrued after the transaction took place.
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(3)
The debits brought into account in respect of the loan relationship for the
period for the purposes of this Part must not be more than they would have
been in that case.
(4)
Nothing in this section affects the credits or debits to be brought into account
for the purposes of this Part in respect of exchange gains or losses arising from
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a debt.
Chapter 6
Connected companies relationships: impairment losses and releases of debts
Introduction
353
Introduction to Chapter
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(1)
This Chapter contains rules about impairment losses and releases of debts in
the case of companies connected with other companies.
(2)
In particular, see—
(a)
sections 354 to 357 (which prevent debits in respect of impairment
losses and release debits from being brought into account in the case of
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connected companies relationships, subject to some exceptions),
(b)
sections 358 to 360 (which exclude credits in respect of the release of
debts or the reversal of impairments from being brought into account
in that case, except where the release is a deemed release under section
361 or 362), and
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(c)
sections 361 to 363 (which treat debt releases as occurring when
impaired debts become held by companies which might otherwise
benefit from the exclusion under section 358).
(3)
In this Chapter “release debit” means a debit in respect of a release by a
company of liability under a creditor relationship of the company.
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(4)
Section 466 (companies connected for an accounting period) applies for the
purposes of sections 354 to 360.
(5)
For the circumstances in which companies are connected for sections 361 and
362, see section 363.
(6)
For the meaning of “impairment loss” see section 476(1).
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