Corporation Tax Act 2010 Explanatory Notes

Section 163: Normal commercial loans: company’s results or value of assets

649.This section explains some of the concepts used in section 162. It is based on paragraph 1 of Schedule 18 to ICTA.

650.Subsection (1) allows a “fixed” rate of interest to include a rate that depends inversely on the company’s results. Interest at a rate that increases when the company’s results improve is like a dividend. But there is no need to treat interest as a dividend if its rate reduces when the company’s results improve.

651.Subsection (2) allows a “fixed” rate of interest to include a rate that depends inversely on the value of the company’s assets. Interest at a rate that increases when the company’s assets increase in value is like a dividend. But there is no need to treat interest as a dividend if its rate reduces when the company’s assets increase in value.

652.Subsections (3) to (6) make clear that a loan is not treated as depending on the value of any of the company’s assets (see section 162(4)(b)) simply because it is secured by a charge over land acquired with the loan.

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