Part 5Loan Relationships

Chapter 15Tax avoidance

Connected parties deriving benefit from creditor relationships

453Connected parties deriving benefit from creditor relationships

1

This section applies in the case of any loan relationship that is a creditor relationship of a company (“A”) if—

a

the return to A from the relationship is less than a commercial return,

b

another company (“B”) that is connected with A directly or indirectly derives any benefit as a result of any arrangements made—

i

in consequence of the relationship, or

ii

otherwise in connection with the relationship, and

c

that benefit is designed to represent some or all of the amount by which the return to A from the relationship is less than a commercial return.

2

The credits to be brought into account by A in respect of the relationship for the purposes of this Part are to be determined on the basis of fair value accounting.

3

The fair value of A’s rights under the relationship must include the fair value of the benefit which is derived by B as a result of the arrangements.

4

In determining the return to A from the relationship for the purposes of subsection (1)(a), any benefit which A derives directly or indirectly from the benefit derived by B as mentioned in subsection (1)(b) is ignored.

5

In this section—

  • “arrangements” includes any agreement or understanding, whether or not it is legally enforceable,

  • “benefit” includes value in any form, and

  • “commercial return” means a return on an investment of money at a commercial rate of interest.