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Corporation Tax Act 2009

Type Public General Act

Publication 2009-03-26

Last updated 2025-04-01

State In force

Department Statute Law Database

Source legislation.gov.uk

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(a) it were owed by or, as the case may be, to the company partner, and

(b) it were so owed for the purposes of the trade or business which the company partner carries on.

(3) If the money debt arises from a transaction for the lending of money—

(a) it continues to be treated as so arising, and

(b) accordingly the company partner is treated as having a loan relationship.

(4) Anything done by or in relation to the firm in connection with the money debt is treated as done by or in relation to the company partner.

(5) The credits and debits in the case of each company partner are the partner's appropriate share of the total credits and debits determined in accordance with subsections (2) to (4) (without any reduction for the fact that the debt is treated as owed by or to each company partner).

(6) A company partner's “appropriate share” is the share that would be apportioned to it on the assumption in subsection (7).

(7) The assumption is that the total credits and debits determined in accordance with subsections (2) to (4) are apportioned between the partners in the shares in which any profit or loss would be apportioned between them in accordance with the firm's profit-sharing arrangements.

Company partners using fair value accounting

382

(1) This section applies if a company partner uses fair value accounting in relation to its interest in the firm.

(2) The credits and debits to be brought into account by the company partner under section 380(3) are to be determined on the basis of fair value accounting.

Lending between partners and the partnership

383

(1) This section applies if—

(a) the money debt owed by or to the firm arises from a transaction for the lending of money, and

(b) there is a time in an accounting period of a company partner (“the relevant accounting period”) when conditions A, B and C are met.

(2) Condition A is that—

(a) if the debt is owed by the firm, the company partner stands in the position of a creditor and accordingly has a creditor relationship, and

(b) if the debt is owed to the firm, the company partner stands in the position of a debtor and accordingly has a debtor relationship.

(3) Condition B is that the company partner controls the firm either alone or taken together with one or more other company partners connected with the company partner (see subsection (7)).

(4) Condition C is that the company partner or any other company partner is treated under section 381(3) as if—

(a) it had the debtor relationship which corresponds to the creditor relationship mentioned in subsection (2)(a), or

(b) it had the creditor relationship which corresponds to the debtor relationship mentioned in subsection (2)(b).

(5) If this section applies, for the purposes of this Part for the relevant accounting period there is taken to be a connection between—

(a) the company partner, and

(b) each company partner that is within subsection (4) (including the company partner itself if it is within that subsection),

as a result of one of them having control of the other at a time in the period for the purposes of section 466(2).

(6) The provisions of this Part about connected companies relationships apply accordingly.

(7) For the purposes of subsection (3), one company partner is connected with another at any time in an accounting period if at that or any other time in the accounting period—

(a) one controls the other, or

(b) both are under the control of the same person.

(8) Section 472 (meaning of “control”) applies for the purposes of subsection (7) (but see section 1124 of CTA 2010 for the meaning of “control” in subsection (3)).

Treatment of exchange gains and losses

384

(1) Whether credits and debits in respect of exchange gains and losses are to be brought into account by a company partner under this Chapter as a result of section 328(1), or that section is disapplied by section 328(3), depends on the firm's accounts.

(2) Section 328(3) applies only so far as exchange gains and losses are recognised in the firm's statement of total recognised gains and losses, statement of recognised income and expense, statement of changes in equity or statement of income and retained earnings.

(3) Accordingly, a company partner must bring credits and debits into account under this Chapter in respect of exchange gains and losses which are not so recognised.

(4) For the meaning of references in this section to exchange gains and losses, see section 475.

Company partners' shares where firm owns deeply discounted securities

385

(1) This section applies if the firm holds a deeply discounted security.

(2) Each partner is treated for the purposes of this Chapter as beneficially entitled to the share of the security specified in subsection (3).

(3) That share is the share to which the partner would be entitled if—

(a) all the partners were companies, and

(b) the security were apportioned in the shares in which any profit or loss would be apportioned between them in accordance with the firm's profit-sharing arrangements.

(4) In this section “deeply discounted security” has the same meaning as in Chapter 8 of Part 4 of ITTOIA 2005 (profits from deeply discounted securities) (see section 430 of that Act).

Chapter 10 — Insurance companies

Introduction

Overview of Chapter

386

(1) This Chapter contains special rules about the treatment of the loan relationships of insurance companies.

(2) In particular, it—

(a) provides for special rules to apply for the purposes of the I - E rules in relation to an insurance company's non-trading deficits referable to BLAGAB instead of those in Chapter 16 (see sections 387 to 391), and

(b) excludes some loan relationships of corporate members of Lloyd's from this Part (see section 392), ...

(3) For further special rules affecting insurance companies, see—

(a) section 298(3) (under which activities carried on by a company in the course of mutual insurance business which is not life assurance business ... are treated as not constituting a trade or part of a trade) and section 88 of FA 2012 (equivalent rule for activities carried on in the course of BLAGAB),

(b) Chapter 4 (continuity of treatment on transfers within groups or on reorganisations), and, in particular, sections 335(1) and (2), 336(4) and 337,

(d) sections 468 and 471 (connection between creditor and debtor companies to be ignored in some cases where creditor is insurance company carrying on BLAGAB),

(e) section 483(6) (treatment of deferred acquisition costs and provision for unearned premiums or for unexpired risks as a money debt for the purposes of Chapter 2 of Part 6 in the case of companies carrying on insurance business), and

(f) section 486(4) (no exchange gains or losses to arise for the purposes of that Chapter where relevant debts prevented from being deductible as ordinary BLAGAB management expenses).

(4) In this Chapter “BLAGAB” means basic life assurance and general annuity business.

Treatment of deficit on basic life assurance and general annuity business

Treatment of deficit on basic life assurance and general annuity business: introduction

387

(1) Sections 388 to 391 apply for the purposes of the I - E rules instead of Chapters 16 and 16A (non-trading deficits) if a company has a non-trading deficit from its loan relationships for BLAGAB for any accounting period.

(2) In those sections “the deficit” and “the deficit period” mean that deficit and that period respectively.

Basic rule: deficit set off against income and gains of deficit period

388

(1) The basic rule is that the deficit must be set off against any income and gains of the deficit period which are referable to BLAGAB.

(2) The income and gains are reduced accordingly.

(3) Any such reduction is made in accordance with step 4 in section 73 of FA 2012 (that is to say, before any deduction for the adjusted BLAGAB management expenses of the company for the deficit period).

Claim to carry back deficit

389

(1) If the deficit exceeds the income and gains for the deficit period referred to in section 388(1), the company may make a claim for the whole or part of the excess (“the claim amount”)—

(a) to be carried back for up to 3 accounting periods ending within the permitted period, and

(b) to be set off against the available profits of the company in those periods in accordance with subsection (2).

(2) The claim amount reduces the company's available profits in the most recent accounting period of the company, before any remainder reduces those in the next most recent accounting period and then those in the next most recent accounting period.

(2A) If any of the claim amount is carried back in accordance with this section to an accounting period, the amount which is so carried back is to be left out of account for the purpose of applying section 93 of FA 2012 in the case of that period.

(3) For the meaning of “available profits”, see section 390.

(4) In this section and that section “permitted period” means the period of 12 months immediately before the deficit period.

(5) A claim under this section must be made—

(a) within the period of 2 years after the end of the deficit period, or

(b) within such further period as an officer of Revenue and Customs allows.

Meaning of “available profits”

390

(1) For the purposes of section 389 the available profits of the company for an accounting period are its BLAGAB non-trading loan relationships profits for the period (see subsection (4)), less the unused part of the relevant deductions for the period (see subsection (5)).

(2) If an accounting period ending within the permitted period begins before it, only a part of the amount which would otherwise be the available profit for that accounting period is available profit.

(3) That part is so much as is proportionate to the part of the accounting period in the permitted period.

(4) References in this section to a company's BLAGAB non-trading loan relationships profits for an accounting period are references to the amount (if any) of the BLAGAB credits in respect of the company's loan relationships that count as income for the purposes of the I - E rules for that period (as determined by section 88(3) and (4) of FA 2012).

(5) The unused part of the relevant deductions for an accounting period is found as follows.

Step 1

Add together—

(a) the amount for the purposes of section 73 of FA 2012 of the adjusted BLAGAB management expenses of the company for the period, and

(b) so much of the sum of the deductions made in the case of the company in respect of qualifying charitable donations for that period as is referable to BLAGAB.

Step 2

Add together—

(a) so much of the amount for the purposes of section 73 of FA 2012 of the adjusted BLAGAB management expenses of the company for the period as, on the assumption that the company had no BLAGAB non-trading loan relationships profits for the period, could be subtracted at step 6 under that section without producing a negative amount, and

(b) the total amounts referable to BLAGAB which could be applied for the period in making deductions in respect of qualifying charitable donations if those profits were disregarded.

Step 3

Subtract the amount found at Step 2 from the amount found at Step 1.

The result is the unused part of the relevant deductions for the accounting period.

(6) In the case of any claim under section 389, references in subsection (5) to the amount for the purposes of section 73 of FA 2012 of the adjusted BLAGAB management expenses of the company for the period are references to that amount as determined on the assumptions in subsections (7) and (8).

(7) The first assumption is that no account is taken of—

(a) that claim, or

(b) any other claim under section 389 relating to a deficit for an accounting period after the deficit period.

(8) The second assumption is that all such adjustments are made as are required as a result of any sum having been carried back under the Corporation Tax Acts to the accounting period mentioned in subsection (5), otherwise than as a result of—

(a) the claim mentioned in subsection (6), or

(b) any such other claim as is mentioned in subsection (7)(b).

Carry forward of surplus deficit to next accounting period

391

(1) This rule applies if any of the deficit is not—

(a) set off against the income and gains referred to in section 388(1), or

(b) set off against the profits referred to in section 389(1) as the result of a claim under that section.

(2) That deficit must be carried forward to the accounting period immediately after the deficit period (“the next period”).

(3) Any deficit so carried forward is treated for the purposes of section 76 of FA 2012 as a deemed BLAGAB management expense for the next period.

Exclusion of loan relationships of members of Lloyd's

392

(1) This section applies to any loan relationship of a corporate member of Lloyd's.

(2) This Part does not apply as respects the relationship so far as rights or liabilities under it or securities representing it are—

(a) assets forming part of the member's premium trust fund, or

(b) liabilities attached to that fund.

(3) In this section “corporate member” and “premium trust fund” have the same meaning as in Chapter 5 of Part 4 of FA 1994 (Lloyd's underwriters: corporations etc) (see section 230(1) of that Act).

...

General rules for some debtor relationships

393

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Special rules for some debtor relationships

394

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Chapter 11 — Other special kinds of company

Investment trusts' and venture capital trusts' creditor relationships

Investment trusts: profits or losses of a capital nature

395

(1) Profits or losses of a capital nature arising to an investment trust from a creditor relationship may not be brought into account as credits or debits for the purposes of this Part.

(2) For the purposes of this section “profits or losses of a capital nature” means profits or losses that—

(a) are accounted for through the capital column of the income statement in accordance with the Statement of Recommended Practice, or

(b) would have been so accounted for if that Statement had been applied correctly.

(3) “The Statement of Recommended Practice”, in relation to an accounting period for which it is required or permitted to be used, means—

(a) the Statement of Recommended Practice relating to Investment Trust Companies, issued by the Association of Investment Trust Companies in January 2003, as from time to time modified, amended or revised, or

(b) any subsequent Statement of Recommended Practice relating to investment trusts, as from time to time modified, amended or revised.

(4) The Treasury may by order amend the definition of “profits or losses of a capital nature” in subsection (2), so far as it applies in relation to an investment trust that prepares accounts in accordance with international accounting standards.

(5) An order under subsection (4) may make—

(a) different provision for different cases, and

(b) incidental, supplemental, consequential and transitional provision and savings.

Venture capital trusts: profits or losses of a capital nature

396

(1) Profits or losses of a capital nature arising to a venture capital trust from a creditor relationship may not be brought into account as credits or debits for the purposes of this Part.

(2) For the purposes of this section “profits or losses of a capital nature” means profits or losses that—

(a) are accounted for through the capital column of the income statement in accordance with the Statement of Recommended Practice, or

(b) would have been so accounted for if the venture capital trust had been an investment trust and that Statement had been applied correctly.

(3) In this section “the Statement of Recommended Practice” has the meaning given in section 395(3) (investment trusts: profits or losses of a capital nature).

(4) The Treasury may by order amend the definition of “profits or losses of a capital nature” in subsection (2), so far as it applies in relation to a venture capital trust that prepares accounts in accordance with international accounting standards.

(5) An order under subsection (4) may make—

(a) different provision for different cases, and

(b) incidental, supplemental, consequential and transitional provision and savings.

Credit unions

397

(1) In calculating the income of a credit union for any accounting period, no credit is to be brought into account for the purposes of this Part in respect of a loan relationship of the union if a member of the union stands in the position of debtor in relation to the debt in question.

(2) But subsection (1) does not apply if the credit union—

(a) is obliged to make a return under section 887(2) of ITA 2007 for the accounting period, and

(b) has not done so within—

(i) 3 months after the end of the period, or

(ii) such longer period as an officer of Revenue and Customs allows.

(3) No debit is to be brought into account for the purposes of this Part in respect of a loan relationship of a credit union if a member of the union stands in the position of creditor in relation to the debt in question.

Chapter 12 — Special rules for particular kinds of securities

Introduction

Overview of Chapter

398

(1) This Chapter sets out rules relating to the holding of particular kinds of securities.

(2) In particular, see—

(a) sections 399 to 400C (index-linked gilt-edged securities),

(aa) sections 401 to 405 (other gilt-edged securities),

(b) sections 406 to 412 (deeply discounted securities: connected companies and close companies),

(d) sections 415 to 419 (derivatives), ...

(e) section 420 (assumptions where options etc apply), and

(f) section 420A (hybrid capital instruments).

(3) For other special rules about deeply discounted securities, see section 385 (company partners' shares where firm owns deeply discounted securities).

Index-linked gilt-edged securities

Index-linked gilt-edged securities: basic rules

399

(1) This section applies if a loan relationship is represented by an index-linked gilt-edged security.

(2) The amounts to be brought into account for the purposes of this Part are to be determined using fair value accounting.

(3) For provision requiring adjustments to be made to amounts determined under subsection (2), see sections 400 to 400C (adjustments for changes in index).

(4) In this section and sections 400 to 400C—

“index-linked gilt-edged securities” means any gilt-edged securities under which the amounts of the payments are determined wholly or partly by reference to an index of prices published by the Statistics Board;

“relevant prices index”, in relation to an index-linked gilt-edged security, means the index of prices by reference to which the amounts of the payments under the security are wholly or partly determined.

(5) For the meaning of “gilt-edged securities”, see section 476(1).

(6) In the case of insurance companies, the application of sections 400 to 400C is subject to section 112 of FA 2012.

Index-linked gilt-edged securities: adjustments for changes in index

400

(1) This section applies if—

(a) an amount to be brought into account for the purposes of this Part in respect of an index-linked gilt-edged security falls to be determined by reference to its value at two different times, and

(b) there is a change in the relevant prices index between the earlier and the later time.

(2) If that change is an increase, the carrying value of the security at the earlier time is increased by the same percentage as the percentage increase in the relevant prices index between those times.

(2A) Subsection (2) is subject to sections 400A to 400C (relevant hedging schemes).

(3) If that change is a reduction, the carrying value of the security at the earlier time is reduced by the same percentage as the percentage reduction in the relevant prices index between those times.

(4) The Treasury may, in relation to any description of index-linked gilt-edged securities, by order provide that—

(a) there are to be no adjustments under this section, or

(b) an adjustment specified in the order is to be made instead.

(5) An order under subsection (4)—

(a) may not apply to a security issued before the making of the order, but

(b) may make different provision for different descriptions of securities.

(6) The general rule is that the percentage increase or reduction in the relevant prices index is determined for the purposes of this section by reference to the difference between—

(a) the index for the month in which the earlier time falls, and

(b) the index for the month in which the later time falls.

(7) But if the earlier time falls at the beginning of an accounting period which begins with the first day of a month, the index for the previous month is used for the purposes of subsection (6)(a).

Gilt strips

401

(1) This section applies if a loan relationship is represented by—

(a) a strip of a gilt-edged security, or

(b) any other gilt-edged security.

(2) Subsections (3) and (4) apply if a person exchanges a gilt-edged security for strips of that security.

(3) The security is treated as having been redeemed at the time of the exchange by the payment to that person of its market value.

(4) The person is treated as having acquired each strip for an amount equal to—

$$A×BC$where—A is the market value of the security at the time of the exchange,B is the market value of the strip at that time, andC is the total of the market values at that time of all the strips received in the exchange.$

(5) Subsections (6) and (7) apply if strips of a gilt-edged security are consolidated into a single gilt-edged security by being exchanged by any person for that security.

(6) Each strip is treated as having been redeemed at the time of the exchange by the payment to that person of the amount equal to its market value.

(7) The person is treated as having acquired the security for the amount equal to the total of the market values of all the strips given in the exchange.

(8) For the meaning of “market value” and “strip” in relation to securities, see section 402 and section 403 respectively.

Market value of securities

402

(1) References in section 401 to the market value of a security given or received in exchange for another are references to its market value at the time of the exchange.

(2) The Treasury may by regulations make provision for the purposes of section 401 and this section as to the way of determining the market value at any time of—

(a) any strip, or

(b) any other gilt-edged security.

(3) The regulations may make—

(a) different provision for different cases, and

(b) incidental, supplemental, consequential and transitional provision and savings.

Meaning of “strip”

403

(1) In sections 401 and 402 “strip”, in relation to a gilt-edged security, means a security issued under the National Loans Act 1968 (c. 13) which meets conditions A, B and C.

(2) Condition A is that the security is issued for the purpose of representing the right to or of securing—

(a) a payment corresponding to a payment of interest or principal remaining to be made under the gilt-edged security, or

(b) two or more payments each corresponding to a payment to be so made.

(3) Condition B is that the security is issued in conjunction with the issue of one or more other securities which, together with that security—

(a) represent the right to, or

(b) secure,

payments corresponding to every payment remaining to be made under the gilt-edged security.

(4) Condition C is that the security is not itself a security that—

(a) represents the right to, or

(b) secures,

payments corresponding to a part of every payment remaining to be made under the gilt-edged security.

(5) After the balance has been struck for a dividend on a gilt-edged security, a payment to be made in respect of that dividend is treated for the purposes of conditions A, B and C as not being a payment remaining to be made under that security.

Restriction on deductions etc relating to FOTRA securities

404

(1) A company which meets conditions A and B is not to bring into account for the purposes of this Part—

(a) any amount relating to changes in the value of a FOTRA security, or

(b) any debit in respect of the loan relationship represented by the security, including any expenses related to holding the security or any transaction concerning it.

(2) Condition A is that the company is the beneficial owner of the security.

(3) Condition B is that the company is a company which would be exempt from corporation tax on the security under section 1279 (exemption of profits from FOTRA securities).

(4) In this section “FOTRA security” has the same meaning as in that section (see section 1280(1)).

Certain non-UK residents with interest on 3½% War Loan 1952 Or After

405

(1) This section applies if—

(a) in any accounting period a non-UK resident company carries on a business in the United Kingdom—

(i) consisting of banking or insurance, or

(ii) consisting wholly or partly of dealing in securities, and

(b) in calculating the profits of the business for the period any amount is disregarded as a result of section 1279 (exemption of profits from FOTRA securities) because of a condition subject to which any 3½% War Loan 1952 Or After was issued.

(2) Interest on money borrowed for the purposes of the business is to be brought into account as a debit for the purposes of this Part for that period only so far as it exceeds the ineligible amount.

(3) The ineligible amount is found as follows—

Step 1

Add together all sums borrowed for the purposes of the business and still owing in the accounting period.

Step 2

Deduct any sums carrying interest that is not brought into account as a debit under this Part (otherwise than because of subsection (2)).

Step 3

If the amount found at Step 2 exceeds the total cost of the 3½% War Loan 1952 Or After held for the purposes of the business in the accounting period, deduct the excess from that amount.

Step 4

Calculate the average rate of interest in the accounting period on money borrowed for the purposes of the business.

Step 5

Calculate the amount of interest payable on the amount found at Step 3 at the rate found at Step 4 for the accounting period.

The result is the ineligible amount.

(4) If the company's holding of 3½% War Loan 1952 Or After has fluctuated during the accounting period, the total cost for the purposes of Step 3 is taken to be—

$$C×AHTH$where—C is the cost of acquisition of the initial holding (if any) and any holdings acquired during the accounting period,AH is the average holding in that period, andTH is the total of the initial holding (if any) and any holdings acquired during the accounting period.$

(5) In subsection (4) “initial holding” means the holding held by the company at the beginning of the accounting period.

Deeply discounted securities: connected companies and close companies

Introduction

406

(1) The following sections deal with deeply discounted securities—

(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(b) sections 409 to 411 (deeply discounted securities of close companies), and

(2) In this section and sections 409 to 412 “deeply discounted security” has the same meaning as in Chapter 8 of Part 4 of ITTOIA 2005 (profits from deeply discounted securities) (see section 430 of that Act).

(3) In sections 409 to 412 “the discount” means the difference between—

(a) the issue price of the security, and

(b) the amount payable on redemption.

(4) The provisions of Chapter 8 of Part 4 of ITTOIA 2005 apply for the purposes of this section and sections 409 to 412 for determining the difference between the issue price of a security and the amount payable on redemption as they apply for the purposes of section 430 of that Act.

Postponement until redemption of debits for connected companies' deeply discounted securities

407

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Companies connected for section 407

408

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Postponement until redemption of debits for close companies' deeply discounted securities

409

(1) This section applies for any accounting period (“the relevant period”) if—

(a) a debtor relationship of a close company (“the issuing company”) is represented by a deeply discounted security it has issued,

(b) at any time in the period there is a person ("C") who stands in the position of a creditor as respects the security and is—

(i) a participator in the issuing company,

(ii) an associate of such a participator,

(iii) a company of which such a participator has control,

(iv) a person who controls a company which is such a participator,

(v) an associate of a person within sub-paragraph (iv), or

(vi) a company controlled by a person within sub-paragraph (iv),

(d) this section is not disapplied by section 410

and, where it applies, the non-qualifying territory condition is met.

(2) The debits which are to be brought into account for the purposes of this Part by the issuing company in respect of the loan relationship are to be adjusted so that debits relating to the amount of the discount that is referable to the relevant period (“relevant debits”)—

(a) are not brought into account for the relevant period, but

(b) are brought into account for the accounting period in which the security is redeemed.

(3) If there is a person within subsection (1)(b) for only part of the relevant period, subsection (2) applies only to the appropriate proportion of the relevant debits.

(4) In subsection (3) “the appropriate proportion” means the proportion that the part of the relevant period for which there is such a person bears to the whole of that period.

(5) The amount of the discount that is referable to the relevant period is the amount of it which would be brought into account for the purposes of this Part for the relevant period in the case of the issuing company, apart from subsections (2) and (3).

(6) For the meaning of other expressions used in this section, see—

(a) section 411 (interpretation of this section), and

(b) section 412 (persons indirectly standing in the position of creditor).

Exceptions to section 409

410

(1) Section 409 does not apply for any accounting period (“the relevant period”) if any of the following conditions are met—

(a) the corresponding creditor relationship conditions (see subsection (2)),

(b) the CIS-based close company conditions (see subsection (3)), or

(2) The corresponding creditor relationship conditions are that—

(a) at all times in the relevant period when there is a person within section 409(1)(b), that person is a company, and

(b) credits representing the full amount of the discount that is referable to the period are brought into account for the purposes of this Part for any accounting period in respect of the corresponding creditor relationship (see section 412(3)).

(3) The CIS-based close company conditions are that—

(a) the issuing company is a CIS-based close company,

(b) at no time in the relevant period when there is a person within section 409(1)(b) is that person resident for tax purposes in a non-qualifying territory, and

(4) The CIS limited partnership conditions are that—

(a) the debt is one which is owed to, or to persons acting for, a CIS limited partnership,

(b) no member of that partnership is resident for tax purposes in a non-qualifying territory at any time in the relevant period when there is a person within section 409(1)(b),

(c) the issuing company has received written notice from the partnership containing information from which it appears that the condition in paragraph (b) is met, and

(d) the issuing company is a small or medium-sized enterprise for the relevant period.

(4A) The non-qualifying territory condition applies if C is a company; and the non-qualifying territory condition is that C is—

(a) resident for tax purposes in a non-qualifying territory at any time in the relevant period, or

(b) effectively managed in a non-taxing non-qualifying territory at any such time.

(5) In this section—

“CIS-based close company” means a company that would not be a close company apart from the rights and powers of one or more partners in a CIS limited partnership being attributed to another of the partners under section 451(4) to (6) of CTA 2010 because of section 448(1)(a) of that Act,

“CIS limited partnership” means a limited partnership—which is a collective investment scheme, orwhich would be a collective investment scheme if it were not a body corporate,

“issuing company” has the same meaning as in section 409 (see subsection (1)(a) of that section),

“non-qualifying territory” has the meaning given by section 173 of TIOPA 2010 (provision not at arm's length),

“resident for tax purposes” means liable, under the law of the non-qualifying territory, to tax there by reason of domicile, residence or place of management, and

“small or medium-sized enterprise” has the meaning given by section 172 of TIOPA 2010.

(5A) For the purposes of this section, a non-qualifying territory is “non-taxing” if companies are not under its law liable to tax by reason of domicile, residence or place of management.

(6) For the meaning of “corresponding creditor relationship”, see section 412 (persons indirectly standing in the position of creditor).

Interpretation of section 409

411

(1) Section 472 (meaning of “control”) applies for the purposes of section 409 and this section.

(2) A person who is a participator in a company which controls another company is treated for the purposes of section 409 as being a participator in that other company also.

(3) Subject to that, in section 409 and this section “participator”, in relation to a company, means a person who is a participator in the company within the meaning given by section 454 of CTA 2010, but not a person who is such a participator just because of being a loan creditor of the company.

(4) In determining whether a person who carries on the trade of banking is a participator in a company for the purposes of section 409 and this section, securities of the company acquired by the person in the ordinary course of the person's business are ignored.

Persons indirectly standing in the position of creditor

412

(1) For the purposes of sections 407(1)(b) and 409 a person is treated as standing in the position of a creditor if the person indirectly stands in that position by reference to a series of loan relationships or relevant money debts.

(2) If a company (“C”) is so treated for the purposes of section 407(1)(b), the reference in section 407(1)(e) to the corresponding creditor relationship is a reference to C's creditor relationship.

(3) If a person (“P”) is so treated for the purposes of section 409, the reference in section 410(2)(b) to the corresponding creditor relationship is a reference to P's creditor relationship.

(4) In subsection (1) “relevant money debt” means a money debt which would be a loan relationship if a company directly stood in the position of creditor or debtor.

Funding bonds

Issue of funding bonds

413

(1) This section applies to the issue of funding bonds to a creditor in respect of a liability to pay interest on a debt incurred by a body corporate, a government, a public institution or other public authority.

(2) The issue is treated for the purposes of the Corporation Tax Acts as if it were the payment of so much of that interest as equals the market value of the bonds at their issue.

(3) In this section “funding bonds” includes any bonds, stocks, shares, securities or certificates of indebtedness (but does not include any instrument providing for payment in the form of goods or services or a voucher) .

Redemption of funding bonds

414

(1) The redemption of funding bonds is not treated as the payment of interest on a debt for the purposes of the Corporation Tax Acts if their issue was treated as the payment of interest on the debt under—

(a) section 413, or

(b) section 380 of ITTOIA 2005 (which makes provision corresponding to section 413 for income tax purposes).

(2) In this section “funding bonds” includes any bonds, stocks, shares, securities or certificates of indebtedness.

Derivatives

Loan relationships with embedded derivatives

415

(1) This section applies if in accordance with generally accepted accounting practice a company treats the rights and liabilities under a loan relationship to which it is a party as divided between—

(a) rights and liabilities under a loan relationship (“the host contract”), and

(b) rights and liabilities under one or more derivative financial instruments or equity instruments.

(2) The company is treated for the purposes of this Part as a party to a loan relationship whose rights and liabilities consist only of those of the host contract.

(3) For the corresponding treatment of the rights and liabilities within subsection (1)(b), see section 585 (loan relationships with embedded derivatives).

Election for application of sections 415 and 585

416

(1) This section applies if—

(a) a company is subject to old UK GAAP for a period of account,

(b) at the beginning of its first relevant period of account the company did not hold any assets (“relevant assets”) which it is not permitted under old UK GAAP to treat as mentioned in section 415(1),

(c) the company subsequently acquires one or more relevant assets (to which sections 415 and 585 do not apply because of the company being subject to old UK GAAP), and

(d) the company would have been permitted to treat the relevant assets as mentioned in section 415(1) if it had been subject to—

(i) international accounting standards, or

(ii) new UK GAAP.

(2) The company may elect that this Part and Part 7 (derivative contracts) should apply as if sections 415 and 585 did apply.

(3) The election has effect in relation to all relevant assets held by the company including those subsequently acquired, except as provided in subsection (4).

(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5) If an election is made under this section, sections 315 to 318 (adjustments on change of accounting policy) apply as if there were a change of accounting policy consisting of the company treating its relevant assets as mentioned in section 415(1) as from the date the election has effect.

(6) See also section 613(4) (which makes provision corresponding to subsection (5) for the purposes of Part 7).

(7) In this section—

“first relevant period of account”, in relation to a company, means the first period of account of the company beginning on or after 1 January 2005 (the first period in relation to which section 94A of FA 1996 (which is rewritten in section 415) had effect),

“old UK GAAP” means UK generally accepted accounting practice as it applied for periods of account beginning before 1 January 2005, and

“new UK GAAP” means UK generally accepted accounting practice as it applies for periods of account beginning on or after that date.

(8) Section 417 makes further provision about elections under this section.

Further provisions about elections under section 416

417

(1) An election under section 416 must be made not later than 90 days after the acquisition of the relevant assets or, if there is more than one acquisition, the first of them.

(2) The election is irrevocable.

(3) The election has effect from the beginning of the period of account in which the first relevant asset is acquired.

(4) In this section “relevant assets” has the same meaning as in section 416.

Loan relationships treated differently by connected debtor and creditor

418

(1) This section applies if—

(a) two connected companies are party to a loan relationship, one (“the debtor”) as debtor and the other (“the creditor”) as creditor, and

(b) conditions A and B are met.

(2) Condition A is that the rights under the loan relationship include provision by virtue of which the creditor company or any company connected with it—

(a) is or may become entitled, or

(b) is or may be required,

to acquire (whether by conversion or exchange or otherwise) any shares in any company.

(3) Condition B is that—

(a) the debits brought into account by the debtor under this Part in respect of the loan relationship for any accounting period, exceed

(b) the credits brought into account (otherwise than as a result of this section) by the creditor in respect of the loan relationship for the corresponding accounting period or periods of the creditor.

(5) The creditor is treated for the purposes of this Part as bringing into account for the corresponding accounting period or periods additional credits in respect of the loan relationship of an amount equal to the excess.

(6) But if the creditor is a party to the loan relationship as creditor during only part of the corresponding accounting period (or any of the corresponding periods), it is treated for the purposes of this Part as bringing into account for the period only such part of the excess as is just and reasonable.

(6A) For the purposes of this section the creditor is to be treated as continuing to be a party to the loan relationship even though the creditor has disposed of the creditor's rights under the loan relationship to another person—

(a) under a repo or stock lending arrangement, or

(b) under a transaction which is treated as not involving any disposal as a result of section 26 of TCGA 1992 (mortgages and charges not to be treated as disposals).

(6B) For the purposes of this section the creditor is to be treated as continuing to be a party to the loan relationship even though the creditor has disposed of the creditor's rights under the loan relationship to another person if the disposal was made with the relevant avoidance intention.

(6C) The relevant avoidance intention is the intention of eliminating or reducing the credits to be brought into account for the purposes of this Part.

(7) Sections 418A and 419 supplement this section.

Section 418: supplementary

419

(1) References in section 418 to a company being a party to a loan relationship as debtor or creditor include a company which indirectly stands in the position of a debtor or creditor as respects the loan relationship by reference to a series of loan relationships or relevant money debts.

(2) In subsection (1) “relevant money debt” means a money debt that would be a loan relationship if a company directly stood in the position of debtor or creditor.

(3) For the purposes of section 418 an accounting period of the creditor corresponds with an accounting period of the debtor if—

(a) it coincides with it, or

(b) it is wholly or partly within it.

(4) If a corresponding accounting period of the creditor does not coincide with that of the debtor, such apportionments as are just and reasonable are to be made for the purposes of section 418.

(5) Two companies are connected for the purposes of section 418 if their accounting results are reflected in the consolidated group accounts of a group of companies.

(6) Subsection (5) does not affect the application of section 1122 of CTA 2010 (how to tell whether persons are connected).

(6A) References in section 418 to a company bringing debits or credits into account under or for the purposes of this Part include bringing debits or credits into account under or for the purposes of this Part in determining the chargeable profits of the company (or in determining that there were no such profits) for the purposes of Chapter 4 of Part 17 of ICTA (controlled foreign companies).

(7) In this section “the debtor” and “the creditor” have the same meaning as in section 418.

Options etc

Assumptions where options etc apply

420

(1) This section applies if—

(a) the answer to any question specified in subsection (2)—

(i) depends on the exercise of an option by a party to a loan relationship (“A”) or A's associate, or

(ii) is otherwise under the control of A or A's associate, and

(b) an amortised cost basis of accounting applies for an accounting period.

(2) The questions are—

(a) whether any amount will become due under the relationship after the period ends,

(b) how much will become due under it after the period ends, and

(3) In determining the credits and debits to be brought into account for the accounting period in accordance with an amortised cost basis, the assumption in subsection (4) is to be made.

(4) The assumption is that A or A's associate will exercise the power to determine whether and on what date any amount will become due in the way which appears to be the most advantageous to A.

(5) That way is to be determined—

(a) as at the end of the accounting period, and

(b) ignoring taxation.

Chapter 13 — European cross-border transfers of business

Introduction

Introduction to Chapter

421

(1) This Chapter applies if—

(a) condition A or B is met, and

(b) each of the companies mentioned in subsection (3)(a) or (4)(a) makes a claim under this section,

but see section 426 (tax avoidance etc) and section 429 (disapplication of Chapter where transparent entities involved).

(2) Sections 424 and 425 (reorganisations involving loan relationships) also apply if, in addition to the conditions in section 424(1)(a) and (b), condition C is met in relation to the transfer in the course of which the reorganisation in question occurs.

(3) Condition A is that—

(a) a company resident in one relevant state transfers to a company resident in another relevant state the whole or part of a business carried on in the United Kingdom,

(b) the transfer is wholly in exchange for shares or debentures issued by the transferee to the transferor, and

(4) Condition B is that—

(a) a company transfers part of its business to one or more companies,

(b) the transferor is resident in one relevant state,

(d) at least one transferee is resident in a relevant state other than that in which the transferor is resident (and each transferee is resident in a relevant state, but not necessarily the same one),

(e) the transferor continues to carry on a business after the transfer,

(f) immediately after the transfer each transferee is within the charge to corporation tax, and

(g) the transfer—

(i) is made in exchange for the issue of shares in or debentures of each transferee to each person holding shares in or debentures of the transferor, or

(ii) is not so made only because, and only so far as, a transferee is prevented from so issuing such shares or debentures by section 658 of the Companies Act 2006 (c. 46) (general rule against limited company acquiring own shares) or by a corresponding provision of the law of another relevant state preventing such an issue.

(5) Condition C is that—

(a) a UK resident company transfers part of its business to one or more companies,

(b) the part of the transferor's business which is transferred to the transferees was carried on immediately before the transfer in a member State ... through a permanent establishment, and

(6) In this Chapter—

“relevant state” means the United Kingdom or a member State;

“the transfer of business” means the transfer of business mentioned in subsection (3)(a), (4)(a) or (5)(a),

“transferee” has the same meaning as in subsection (3), (4) or (5), and

“the transferor” has the same meaning as in subsection (3), (4) or (5).

(7) For the meaning of “company” and “resident in a relevant state”, see section 430.

Transfers of loan relationships at notional carrying value

Transfer of loan relationship at notional carrying value

422

(1) This section applies if in the course of the transfer of business the transferor transfers an asset or liability representing a loan relationship to a transferee.

(2) For the purpose of determining the credits and debits to be brought into account in respect of the loan relationship for the purposes of this Part, the transferor and the transferee are treated as having entered into the transfer of that asset or liability for consideration of an amount equal to the notional carrying value of the asset or liability.

(3) For the purposes of this section—

(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(b) “notional carrying value”, in relation to an asset or liability, means the amount which would have been its tax-adjusted carrying value based on the accounts of the transferor if a period of account had ended immediately before the date when the transferor ceased to be a party to the loan relationship.

(4) This section is subject to section 423 (transferor using fair value accounting).

Transferor using fair value accounting

423

(1) This section applies instead of section 422 if, in a case where that section would otherwise apply, the transferor is regarded for the purposes of this section as using fair value accounting in respect of the loan relationship (see subsection (4)).

(2) The amount which is to be brought into account by the transferor in respect of the transfer of the asset or liability mentioned in section 422(1) (“the transferor's amount”) is—

(a) if an asset is to be brought into account, its fair value as at the date when the transferee becomes a party to the loan relationship, or the fair value of the rights under or interest in it as at that date, and

(b) if a liability is to be brought into account, its fair value as at that date.

(3) For any accounting period in which the transferee is a party to the loan relationship, for the purpose of determining the credits and debits to be brought into account in respect of it for the purposes of this Part, the transferee is treated as if it had acquired the asset or liability representing the relationship for consideration of an amount equal to the transferor's amount.

(4) The transferor is regarded for the purposes of this section as using fair value accounting in respect of the loan relationship only if the credits and debits to be brought into account for the purposes of this Part as respects the relationship are determined on that basis.

(5) It does not matter for the purposes of subsection (4) if the transferor does not otherwise use fair value accounting in respect of the loan relationship.

Reorganisations involving loan relationships

424

(1) This section applies if—

(a) sections 127 to 130 of TCGA 1992 (reorganisations: equation of original shares and new holding)—

(i) apply in relation to a reorganisation, or

(ii) would so apply but for section 116(5) of that Act (which disapplies those sections where the original shares or the new holding consists of or includes a qualifying corporate bond),

(b) the original shares consist of or include an asset representing a loan relationship, and

(i) section 422 or 423 applies as a result of condition B in section 421 being met in relation to the transfer in the course of which the reorganisation occurs, or

(ii) condition C in section 421 is met in relation to that transfer.

(2) For the purposes of this Part such debits and credits are to be brought into account as would be brought into account if the reorganisation were a disposal of the asset representing the loan relationship for consideration of an amount equal to its notional carrying value.

(3) For the purposes of this section, the notional carrying value of that asset is the amount which would have been its tax-adjusted carrying value based on the accounts of the original holder if a period of account had ended immediately before the date when the reorganisation occurred.

(4) In this section—

“original holder” means a person holding the original shares immediately before the reorganisation,

“original shares” has the meaning given by section 126(1) of TCGA 1992 (application of sections 126 to 131 of that Act), and

“reorganisation” includes anything to which sections 127 to 130 of that Act apply as if it were a reorganisation.

(5) This section is subject to—

(a) section 425 (original holder using fair value accounting), and

(b) section 429 (disapplication of Chapter where transparent entities involved).

Original holder using fair value accounting

425

(1) This section applies instead of section 424 if, in a case where that section would otherwise apply, the original holder is regarded for the purposes of this section as using fair value accounting in respect of the loan relationship constituting or included in the original shares.

(2) The amount which is to be brought into account by the original holder in respect of the reorganisation (“the disposal amount”) is the fair value of the asset representing the loan relationship as at the date when the reorganisation occurred, or of the rights under or interest in that relationship as at that date.

(3) For any accounting period in which a successor creditor company is a party to the loan relationship, for the purpose of determining the credits and debits to be brought into account in respect of the relationship for the purposes of this Part, the successor creditor company is treated as if it had acquired the asset representing the loan relationship for consideration of an amount equal to the disposal amount.

(4) Subsections (4) and (5) of section 423 apply for the purposes of this section as they apply for the purposes of that section, but taking the references in that section to the transferor as references to the original holder.

(5) In this section—

“successor creditor company” means a company in relation to which the loan relationship constituting or included in the original shares is a creditor relationship immediately after the reorganisation, and

“original holder” and “original shares” have the same meaning as in section 424.

(6) This section is subject to section 429 (disapplication of Chapter where transparent entities involved).

Exception for tax avoidance cases

Tax avoidance etc

426

(1) This Chapter does not apply in relation to the transfer of business if—

(a) the transfer of business is not effected for genuine commercial reasons, or

(b) the transfer of business forms part of a scheme or arrangements of which the main purpose, or one of the main purposes, is avoiding liability to corporation tax, capital gains tax or income tax.

(2) But subsection (1) does not prevent this Chapter from applying if before the transfer of business—

(a) the companies mentioned in section 421(3)(a), (4)(a) or (5)(a) have applied to the Commissioners for Her Majesty's Revenue and Customs, and

(b) the Commissioners have notified them that they are satisfied that subsection will not have that effect.

Procedure on application for clearance

427

(1) This section applies in relation to an application under section 426(2).

(2) The application must be in writing and must contain particulars of the operations which are to be effected.

(3) The Commissioners for Her Majesty's Revenue and Customs may by notice require the applicant to provide further particulars for the purpose of enabling them to make their decision.

(4) Such a notice may only be given within 30 days of the receipt of the application or of any further particulars previously required under subsection (3).

(5) If such a notice is not complied with within 30 days or such longer period as the Commissioners for Her Majesty's Revenue and Customs may allow, they need not proceed further on the application.

Decision on application for clearance

428

(1) The Commissioners for Her Majesty's Revenue and Customs must notify their decision on an application under section 426(2) to the applicant—

(a) within 30 days of receiving the application, or

(b) if they give a notice under section 427(3), within 30 days of the notice being complied with.

(2) If the Commissioners for Her Majesty's Revenue and Customs—

(a) notify the applicant that they are not satisfied as mentioned in section 426(2)(b), or

(b) do not notify their decision to the applicant within the time required by subsection (1),

the applicant may within 30 days of the notification or of that time require them to transmit the application to the tribunal, together with any notice given and further particulars provided under section 427(3).

(3) In that case any notification by the tribunal has effect for the purposes of section 426(2)(b) as if it were a notification by the Commissioners for Her Majesty's Revenue and Customs.

(4) If any particulars provided under section 427 do not fully and accurately disclose all facts and considerations material for the decision—

(a) of the Commissioners for Her Majesty's Revenue and Customs, or

(b) of the tribunal,

any resulting notification by the Commissioners for Her Majesty's Revenue and Customs or the tribunal is void.

Transparent entities

Disapplication of Chapter where transparent entities involved

429

(1) This Chapter does not apply in relation to the transfer of business if the transferor is a transparent entity.

(2) If any transferee is a transparent entity, sections 424 and 425 (reorganisations involving loan relationships) do not apply.

(3) In this section “transparent entity” means a company which is resident in a member State ... and does not have an ordinary share capital.

(4) For the meaning of “resident in a relevant state”, see section 430.

Interpretation

430

(1) In this Chapter “company” means any entity listed as a company in Part A of Annex I to the Mergers Directive.

(2) For the purposes of this Chapter, a company is resident in a relevant state if—

(a) it is within a charge to tax under the law of the relevant state as being resident for that purpose, and

(b) it is not regarded, for the purpose of any double taxation relief arrangements to which the relevant state is a party, as resident in a territory not within a relevant state.

Chapter 14 — European cross-border mergers

Introduction

Introduction to Chapter

431

(1) This Chapter applies if the following conditions are met—

(a) conditions A to D,

(b) in the case of a merger within subsection (3)(a), (b) or (c), condition E, and

but see section 437 (tax avoidance etc) and section 438 (disapplication of Chapter where transparent entities involved).

(2) Sections 435 and 436 (reorganisations involving loan relationships) also apply in cases that would be within subsection (1) apart from condition D not being met if, in addition to the conditions in section 435(1)(a) and (b), condition G is met in relation to a transfer in the course of the merger in which the reorganisation in question occurs.

(3) Condition A is that—

(a) an SE is formed by the merger of two or more companies in accordance with Articles 2(1) and 17(2)(a) or (b) of Council Regulation (EC) No. 2157/2001 on the Statute for a European company (Societas Europaea),

(b) an SCE is formed by the merger of two or more co-operative societies, at least one of which is a society registered under the the Co-operative and Community Benefit Societies Act 2014, in accordance with Articles 2(1) and 19 of Council Regulation (EC) No. 1435/2003 on the Statute for a European Co-operative Society (SCE),

(c) a merger is effected by the transfer by one or more companies of all their assets and liabilities to a single existing company, or

(d) a merger is effected by the transfer by two or more companies of all their assets and liabilities to a single new company (other than an SE or an SCE) in exchange for the issue by the transferee, to each person holding shares in or debentures of a transferor, of shares or debentures.

(4) Condition B is that each merging company is resident in a relevant state.

(5) Condition C is that the merging companies are not all resident in the same relevant state.

(6) Condition D is that immediately after the merger the transferee is within the charge to corporation tax.

(7) Condition E is that—

(a) the transfer of assets and liabilities to the transferee in the course of the merger is made in exchange for the issue of shares or debentures by the transferee to each person holding shares in or debentures of a transferor, or

(b) that transfer is not so made only because, and only so far as, the transferee is prevented from so issuing such shares or debentures by section 658 of the Companies Act 2006 (c. 46) (general rule against limited company acquiring own shares) or by a corresponding provision of the law of a member State preventing such an issue.

(8) Condition F is that in the course of the merger each transferor ceases to exist without being in liquidation (within the meaning given by section 247 of the Insolvency Act 1986 (c. 45)).

(9) Condition G is that—

(a) in the course of the merger a company resident in the United Kingdom (“company A”) transfers to a company resident in a member State all assets and liabilities relating to a business which company A carried on in a member State ... through a permanent establishment, and

(b) that transfer includes the transfer of an asset or liability representing a loan relationship.

(10) In this Chapter,

(a) “the merger” and “the merging companies” have the same meaning as in this section

(b) “relevant state” means the United Kingdom or a member State.

(11) See—

(a) section 432 for the meaning of “the transferee” and “transferor”, and

(b) section 439 for the meaning of “company”, “co-operative society” and “resident in a relevant state”.

Meaning of “the transferee” and “transferor”

432

(1) In this Chapter, “the transferee” means—

(a) in relation to a merger within section 431(3)(a), the SE,

(b) in relation to a merger within section 431(3)(b), the SCE, and

(c) in relation to a merger within section 431(3)(c) or (d), the company to which assets and liabilities are transferred.

(2) In this Chapter “transferor” means—

(a) in relation to a merger within section 431(3)(a), a company merging to form the SE,

(b) in relation to a merger within section 431(3)(b), a co-operative society merging to form the SCE, and

Transfers of loan relationships at notional carrying value

Transfer of loan relationship at notional carrying value

433

(1) This section applies if in the course of the merger a transferor transfers an asset or liability representing a loan relationship to the transferee.

(2) For the purpose of determining the credits and debits to be brought into account in respect of the loan relationship in accordance with this Part, the transferor and the transferee are treated as having entered into the transfer of that asset or liability for consideration of an amount equal to the notional carrying value of the asset or liability.

(3) For the purposes of this section—

(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(b) “notional carrying value”, in relation to an asset or liability, means the amount which would have been its tax-adjusted carrying value based on the accounts of the transferor if a period of account had ended immediately before the date when the transferor ceased to be a party to the loan relationship.

(4) This section is subject to section 434.

Transferor using fair value accounting

434

(1) This section applies instead of section 433 if, in a case where that section would otherwise apply, the transferor is regarded for the purposes of this section as using fair value accounting in respect of the loan relationship (see subsection (4)).

(2) The amount which is to be brought into account by the transferor in respect of the transfer of the asset or liability mentioned in section 433(1) (“the transferor's amount”) is—

(a) if an asset is to be brought into account, its fair value as at the date when the transferee becomes a party to the loan relationship, or the fair value of the rights under or interest in it as at that date, and

(b) if a liability is to be brought into account, its fair value as at that date.

(3) For any accounting period in which the transferee is a party to the loan relationship, for the purpose of determining the credits and debits to be brought into account in respect of it for the purposes of this Part, the transferee is treated as if it had acquired the asset or liability representing the relationship for consideration of an amount equal to the transferor's amount.

(4) The transferor is regarded for the purposes of this section as using fair value accounting in respect of the loan relationship only if the credits and debits to be brought into account for the purposes of this Part as respects the relationship are determined on that basis.

(5) It does not matter for the purposes of subsection (4) if the transferor does not otherwise use fair value accounting in respect of the loan relationship.

Reorganisations involving loan relationships

435

(1) This section applies if—

(a) sections 127 to 130 of TCGA 1992 (reorganisations: equation of original shares and new holding)—

(i) apply in relation to a reorganisation, or

(ii) would so apply but for section 116(5) of that Act (which disapplies those sections where the original shares or the new holding consists of or includes a qualifying corporate bond),

(b) the original shares consist of or include an asset representing a loan relationship, and

(c) section 433 or 434 applies in relation to a transfer in the course of the merger in which the reorganisation occurs or, in a case where those sections would apply apart from condition D in section 431 not being met, condition G in that section is met in relation to such a transfer.

(2) For the purposes of this Part such debits and credits are to be brought into account as would be brought into account if the reorganisation were a disposal of the asset representing the loan relationship for consideration of an amount equal to its notional carrying value.

(3) For the purposes of this section, the notional carrying value of that asset is the amount which would have been its tax-adjusted carrying value based on the accounts of the original holder if a period of account had ended immediately before the date when the reorganisation occurred.

(4) In this section—

“original holder” means a person holding the original shares immediately before the reorganisation,

“original shares” has the meaning given by section 126(1) of TCGA 1992 (application of sections 126 to 131 of that Act), and

“reorganisation” includes anything to which sections 127 to 130 of that Act apply as if it were a reorganisation.

(5) This section is subject to—

(a) section 436 (original holder using fair value accounting), and

(b) section 438 (disapplication of Chapter where transparent entities involved).

Original holder using fair value accounting

436

(1) This section applies instead of section 435 if, in a case where that section would otherwise apply, the original holder is regarded for the purposes of this section as using fair value accounting in respect of the loan relationship constituting or included in the original shares.

(2) The amount which is to be brought into account by the original holder in respect of the reorganisation (“the disposal amount”) is the fair value of the asset representing the loan relationship as at the date when the reorganisation occurred, or of the rights under or interest in that relationship as at that date.

(3) For any accounting period in which a successor creditor company is a party to the loan relationship, for the purpose of determining the credits and debits to be brought into account in respect of the relationship for the purposes of this Part, the successor creditor company is treated as if it had acquired the asset representing the loan relationship for consideration of an amount equal to the disposal amount.

(4) Subsections (4) and (5) of section 434 apply for the purposes of this section as they apply for the purposes of that section, but taking the references in that section to the transferor as references to the original holder.

(5) In this section—

“successor creditor company” means a company in relation to which the loan relationship constituting or included in the original shares is a creditor relationship immediately after the reorganisation, and

“original holder” and “original shares” have the same meaning as in section 435.

(6) This section is subject to section 438 (disapplication of Chapter where transparent entities involved).

Exception for tax avoidance cases

Tax avoidance etc

437

(1) This Chapter does not apply in relation to the merger if—

(a) the merger is not effected for genuine commercial reasons, or

(b) the merger forms part of a scheme or arrangements of which the main purpose, or one of the main purposes, is avoiding liability to corporation tax, capital gains tax or income tax.

(2) But subsection (1) does not prevent this Chapter from applying if before the merger—

(a) any of the merging companies has applied to the Commissioners for Her Majesty's Revenue and Customs, and

(b) the Commissioners have notified the merging companies that they are satisfied that subsection will not have that effect.

(3) Sections 427 and 428 have effect in relation to subsection (2) as in relation to section 426(2), taking the references in section 428 to section 426(2)(b) as references to subsection (2)(b) of this section.

Transparent entities

Disapplication of Chapter where transparent entities involved

438

(1) This section applies if one or more of the merging companies is a transparent entity.

(2) If as a result of the merger the assets and liabilities of a transparent entity are transferred to another company, this Chapter does not apply in relation to the transfer.

(3) If as a result of the merger the assets and liabilities of one or more other companies are transferred to a transparent entity, sections 435 and 436 do not apply to the new holding.

(4) In this section—

“new holding” has the meaning given by section 126(1) of TCGA 1992 (application of sections 126 to 131 of that Act), and

“transparent entity” means a company which is resident in a member State ... and does not have an ordinary share capital.

Interpretation

439

(1) In this Chapter—

“company” means any entity listed as a company in Part A of Annex I to the Mergers Directive, and

“co-operative society” means a society registered under the Co-operative and Community Benefit Societies Act 2014 or a similar society governed by the law of a member State ....

(2) For the purposes of this Chapter, a company is resident in a relevant state if—

(a) it is within a charge to tax under the law of the relevant state as being resident for that purpose, and

(b) it is not regarded, for the purpose of any double taxation relief arrangements to which the relevant state is a party, as resident in a territory not within a relevant state.

Chapter 15 — Tax avoidance

Introduction

Overview of Chapter

440

(1) This Chapter contains rules connected with tax avoidance.

(2) In particular—

(a) for rules about unallowable purposes ..., see sections 441 and 442,

(b) for rules relating to credits and debits where transactions are not at arm's length (other than credits and debits relating to exchange gains and losses), see sections 444 to 446,

(c) for rules relating to credits and debits relating to exchange gains and losses where transactions are not at arm's length, see sections 447 to 452,

(d) for rules about connected parties deriving benefit from creditor relationships, see section 453,

(e) for rules dealing with tax advantages from resetting interest rates, see section 454, ...

(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(g) for rules about debits arising as a result of the derecognition of creditor relationships, see section 455A, and

(h) for rules dealing with tax avoidance arrangements, see sections 455B to 455D.

Unallowable purposes and tax relief schemes

Loan relationships for unallowable purposes

441

(1) This section applies if in any accounting period a loan relationship of a company has an unallowable purpose.

(2) The company may not bring into account for that period for the purposes of this Part so much of any credit in respect of exchange gains from that relationship as on a just and reasonable apportionment is attributable to the unallowable purpose.

(3) The company may not bring into account for that period for the purposes of this Part so much of any debit in respect of that relationship as on a just and reasonable apportionment is attributable to the unallowable purpose.

(3A) If—

(a) a credit brought into account for that period for the purposes of this Part by the company would (in the absence of this section) be reduced, and

(b) the reduction represents an amount which, if it did not reduce a credit, would be brought into account as a debit in respect of that relationship,

subsection (3) applies to the amount of the reduction as if it were an amount that would (in the absence of this section) be brought into account as a debit.

(4) An amount which would be brought into account for the purposes of this Part as respects any matter apart from this section is treated for the purposes of section 464(1) (amounts brought into account under this Part excluded from being otherwise brought into account) as if it were so brought into account.

(5) Accordingly, that amount is not to be brought into account for corporation tax purposes as respects that matter either under this Part or otherwise.

(6) For the meaning of “has an unallowable purpose” and “the unallowable purpose” in this section, see section 442.

Meaning of “unallowable purpose”

442

(1) For the purposes of section 441 a loan relationship of a company has an unallowable purpose in an accounting period if, at times during that period, the purposes for which the company—

(a) is a party to the relationship, or

(b) enters into transactions which are related transactions by reference to it,

include a purpose (“the unallowable purpose”) which is not amongst the business or other commercial purposes of the company.

(1A) In subsection (1)(b) “related transaction”, in relation to a loan relationship, includes anything which equates in substance to a disposal or acquisition of the kind mentioned in section 304(1) (as read with section 304(2)).

(2) If a company is not within the charge to corporation tax in respect of a part of its activities, for the purposes of this section the business and other commercial purposes of the company do not include the purposes of that part.

(3) Subsection (4) applies if a tax avoidance purpose is one of the purposes for which a company—

(a) is a party to a loan relationship at any time, or

(b) enters into a transaction which is a related transaction by reference to a loan relationship of the company.

(4) For the purposes of subsection (1) the tax avoidance purpose is only regarded as a business or other commercial purpose of the company if it is not—

(a) the main purpose for which the company is a party to the loan relationship or, as the case may be, enters into the related transaction, or

(b) one of the main purposes for which it is or does so.

(5) The references in subsections (3) and (4) to a tax avoidance purpose are references to any purpose which consists of securing a tax advantage for the company or any other person.

Restriction of relief for interest where tax relief schemes involved

443

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Transactions not at arm's length: general

Transactions not at arm’s length: general

444

(1) If—

(a) credits or debits in respect of a loan relationship of a company are to be brought into account for the purposes of this Part in respect of a related transaction, and

(b) that transaction is not a transaction at arm's length,

those credits or debits are to be determined for the purposes of this Part in accordance with the independent terms assumption.

(2) The independent terms assumption is that the transaction was entered into on the terms on which it would have been entered into between knowledgeable and willing parties dealing at arm's length.

(3) This section is subject to section 445 (disapplication of this section where Part 4 of TIOPA 2010 applies).

(4) Subsection (1) does not apply to debits arising from the acquisition of rights under a loan relationship if those rights are acquired for less than market value.

(5) In a case where the related transaction is a transaction within section 336(2) or part of a series of transactions within 336(3) (group transactions), subsection (1) does not apply if—

(a) section 340 (group transfers and transfers of insurance business: transfer at notional carrying value) applies as a result of that transaction or, as the case may be, that series of transactions, or

(b) section 340 would so apply apart from section 341 (transferor using fair value accounting).

(6) Subsection (1) does not apply to exchange gains or losses (but see sections 447 to 452).

Disapplication of section 444 where Schedule 28AA to ICTA applies

445

(1) Section 444 does not apply, and Part 4 of TIOPA 2010 (provision not at arm's length) applies instead, to credits or debits in respect of amounts which—

(a) fall to be adjusted for tax purposes under that Part, or

(b) are within that Part without falling to be so adjusted (see subsection (3)).

(2) Subsection (1) applies despite section 464 (amounts brought into account under this Part excluded from being otherwise brought into account), but is subject to—

(a) section 340(7) (disapplication of Part 4 of TIOPA 2010 where group member replaces another as party to loan), and

(b) section 447(5) (disapplication of that Part for exchange gains and losses).

(3) For the purposes of subsection (1), an amount is within Part 4 of TIOPA 2010 without falling to be adjusted under it in a case where—

(a) the condition in section 147(1)(a) of TIOPA 2010 is met,

(aa) the participation condition is met (see subsection (3A)), and

(b) the actual provision does not differ from the arm's length provision.

(3A) Section 148 of TIOPA 2010 (when the participation condition is met) applies for the purposes of subsection (3)(aa) as it applies for the purposes of section 147(1)(b) of TIOPA 2010.

(4) For the way in which this Part applies where adjustments are made under Part 4 of TIOPA 2010, see section 446.

(5) In this section “the actual provision” and “the arm's length provision” have the same meaning as in Part 4 of TIOPA 2010 (see sections 149 and 151 of that Act).

Bringing into account adjustments made under Schedule 28AA to ICTA

446

(1) This section deals with the credits and debits which are to be brought into account for the purposes of this Part as a result of Part 4 of TIOPA 2010 (provision not at arm's length) applying in relation to a company's loan relationships or related transactions.

(2) Subsection (3) applies if under Part 4 of TIOPA 2010 an amount (“the imputed amount”) is treated as an amount of profits or losses arising to a company from any of its loan relationships or related transactions.

(3) Credits or debits relating to the imputed amount are to be brought into account for the purposes of this Part to the same extent as they would be in the case of an actual amount of such profits or losses.

(4) Subsection (5) applies if under Part 4 of TIOPA 2010 an amount is treated as interest payable under any of a company's loan relationships.

(5) Credits or debits relating to that amount are to be brought into account for the purposes of this Part to the same extent as they would be in the case of an actual amount of such interest.

(6) Subsection (7) applies if under Part 4 of TIOPA 2010 an amount is treated as expenses incurred by a company under or for the purposes of any of its loan relationships or related transactions.

(7) Debits relating to the amount are to be brought into account for the purposes of this Part to the same extent as they would be in the case of an actual amount of such expenses.

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