House of Commons portcullis
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

5

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

10

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.

15

(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

20

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.

25

(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

30

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

40

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—

5

(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

10

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

15

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.

25

(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

35

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”).

40

(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.

15

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—

20

(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.

35

(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”),

40

   

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.

10

(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

15

a debt.

Chapter 6

Connected companies relationships: impairment losses and releases of debts

Introduction

353     

Introduction to Chapter

20

(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

25

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

30

(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.

35

(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).

40

 
 

 
previous section contents continue
 
House of Commons home page Houses of Parliament home page House of Lords home page search page enquiries

© Parliamentary copyright 2008
Revised 9 December 2008