Corporation Tax Act 2009

Transactions not at arm’s length: general

444 Transactions not at arm’s length: general

(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 Schedule 28AA to ICTA 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).

445 Disapplication of section 444 where Schedule 28AA to ICTA applies

(1) Section 444 does not apply, and Schedule 28AA to ICTA (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 Schedule, or

(b) are within that Schedule 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 Schedule 28AA to ICTA where group member replaces another as party to loan), and

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

(3) For the purposes of subsection (1), an amount is within Schedule 28AA to ICTA without falling to be adjusted under it in a case where—

(a) the conditions in paragraph 1(1) of that Schedule are met, and

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

(4) For the way in which this Part applies where adjustments are made under Schedule 28AA to ICTA, see section 446.

(5) In this section “the actual provision” and “the arm’s length provision” have the same meaning as in Schedule 28AA to ICTA (see paragraph 1 of that Schedule).

446 Bringing into account adjustments made under Schedule 28AA to ICTA

(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 Schedule 28AA to ICTA (provision not at arm’s length) applying in relation to a company’s loan relationships or related transactions.

(2) Subsection (3) applies if under Schedule 28AA to ICTA 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 Schedule 28AA to ICTA 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 Schedule 28AA to ICTA 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.