Finance Act 1994

167 Transactions not at arm’s length

(1) A transaction entered into on or after a qualifying company’s commencement day is a relevant transaction for the purposes of this section if as a result of the transaction—

(a) the qualifying company becomes party to a qualifying contract, or

(b) the terms of a qualifying contract to which the qualifying company is party are varied.

(2) Subsections (3) to (5) below apply where—

(a) if the parties to a relevant transaction had been dealing at arm’s length, the transaction—

(i) would not have been entered into at all, or

(ii) would have been entered into on different terms, and

(b) the Board direct that those subsections shall apply,

but subject, in a case falling within paragraph (a)(ii) above, to the modifications made by subsection (7) below.

(3) For each relevant accounting period for the whole of which the other party is a qualifying company, the following deductions shall be made—

(a) from amount B, a deduction of such amount as may be necessary to reduce amount B to nil, and

(b) from amount A, a deduction of such amount as may be necessary to reduce amount A to nil.

(4) For each relevant accounting period for any part of which the other party is not a qualifying company, the following deductions shall be made—

(a) from amount B, a deduction of such amount as may be necessary to reduce amount B to nil, and

(b) from amount A, a deduction of the same amount or (where that amount exceeds amount A) a deduction of so much of that amount as may be necessary to reduce amount A to nil.

(5) For each relevant accounting period (except the first) for any part of which the other party is not a qualifying company, there shall also be deducted from amount A or, as the case may require, added to amount B such amount as may be necessary to secure that amount C does not exceed amount D where—

(a) amount C is any amount by which the aggregate of adjusted amounts A exceeds the aggregate of adjusted amounts B, and

(b) amount D is any amount by which the aggregate of unadjusted amounts A exceeds the aggregate of unadjusted amounts B.

(6) In subsection (5) above—

• “adjusted” means adjusted under subsections (4) and (5) above and “unadjusted” shall be construed accordingly;

• “the aggregate of adjusted amounts A”, in relation to a relevant accounting period, means the aggregate of—

  (a)

  adjusted amount A for that period, and

  (b)

  adjusted amount A for each preceding relevant accounting period,

  and similar expressions shall be construed accordingly.

(7) In a case falling within subsection (2)(a)(ii) above—

(a) subsections (3) to (5) above shall have effect as if any reference to amount A or amount B were a reference to the relevant proportion of that amount; and

(b) the definitions in subsection (6) above of “the aggregate of adjusted amounts A” and similar expressions shall have effect as if any reference to adjusted amount A were a reference to the adjusted relevant proportion of amount A;

and in this subsection “the relevant proportion” means such proportion as may be just and reasonable having regard to the differences between the terms mentioned in subsection (2)(a)(ii) above and the terms on which the relevant transaction was actually entered into.

(8) In applying subsections (2) and (7) above—

(a) no account shall be taken of any transfer of value in respect of which an adjustment is made under section 165 or 166 above, but

(b) subject to that, all factors shall be taken into account.

(9) The factors which may be so taken into account include—

(a) in a case where the qualifying contract is an interest rate contract or option, any notional principal amounts and rates of interest that would have been involved;

(b) in a case where the qualifying contract is a currency contract or option, any currencies and amounts that would have been involved; and

(c) in either case, any transactions which are related to the relevant transaction.

(10) In this section “relevant accounting period”, in relation to a relevant transaction, means—

(a) the accounting period of the qualifying company in which the transaction was entered into, and

(b) each subsequent accounting period of that company for the whole or part of which it is party to the contract.