Finance Act 1996

Loan relationships for unallowable purposes E+W+S+N.I.

13 (1) Where in any accounting period a loan relationship of a company has an unallowable purpose, E+W+S+N.I.

[F1 (a) the debits, and

(b) the credits in respect of exchange gains,]

which, for that period fall, in the case of that company, to be brought into account for the purposes of this Chapter shall not include so much of the debits [F2 or credits (as the case may be)] given by the authorised accounting method used as respects that relationship as, on a just and reasonable apportionment, is attributable to the unallowable purpose.

[F3 (1A) Amounts which, by virtue of this paragraph, are not brought into account for the purposes of this Chapter as respects any matter are in consequence also amounts which, in accordance with section 80(5) of this Act, are not to be brought into account for the purposes of corporation tax as respects that matter apart from this Chapter.]

(2) For the purposes of this paragraph a loan relationship of a company shall be taken to have an unallowable purpose in an accounting period where the purposes for which, at times during that period, the company—

(a) is a party to the relationship, or

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

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

(3) For the purposes of this paragraph the business and other commercial purposes of a company do not include the purposes of any part of its activities in respect of which it is not within the charge to corporation tax.

(4) For the purposes of this paragraph, where 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 any loan relationship of the company,

is a tax avoidance purpose, that purpose shall be taken to be a business or other commercial purpose of the company only where it is not the main purpose, or one of the main purposes, for which the company is a party to the relationship at that time or, as the case may be, for which the company enters into that transaction.

(5) The reference in sub-paragraph (4) above to a tax avoidance purpose is a reference to any purpose that consists in securing a tax advantage (whether for the company or any other person).

(6) In this paragraph—

• F4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• “tax advantage” has the same meaning as in Chapter I of Part XVII of the Taxes Act 1988 (tax avoidance).

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Amendments (Textual)

F1 Sch. 9 para. 13(1)(a)(b) substituted (24.7.2002 with effect as mentioned in s. 79(3) of the amending Act) for words by Finance Act 2002 (c. 23), s. 79(2), Sch. 23 Pt. 1 para. 13(a) (with Sch. 23 Pt. 3 para. 25)

F2 Words in Sch. 9 para. 13(1) inserted (24.7.2002 with effect as mentioned in s. 79(3) of the amending Act) by Finance Act 2002 (c. 23), s. 79(2), Sch. 23 Pt. 1 para. 13(b) (with Sch. 23 Pt. 3 para. 25)

F3 Sch. 9 para. 13(1A) inserted (24.7.2002 with effect as mentioned in s. 82(2) of the amending Act) by Finance Act 2002 (c. 23), s. 82(1), Sch. 25 Pt. 1 para. 30

F4 In Sch. 9 para. 13(6) definition of "related transaction" repealed (24.7.2002 with effect in accordance with s. 79(3) of and Sch. 23 to the repealing Act) by Finance Act 2002 (c. 23), s. 141, Sch. 40 Pt. 3(10)