Corporation Tax Act 2009

537 Payments in return for capital contribution to partnership

(1) This section applies if a company is a party to relevant arrangements under which—

(a) a firm of which it is a member is or may become entitled to receive a capital contribution from any person (whether directly or indirectly), and

(b) that person, or a person connected with that person, receives a sum of money or other asset from the company (whether directly or indirectly).

(2) In subsection (1) “relevant arrangements” means arrangements—

(a) which are designed to produce for the company a return which equates, in substance, to a return on the investment of the money or other asset at a commercial rate of interest, and

(b) of which the purpose, or one of the main purposes, is to secure a tax advantage.

(3) The return is treated for the purposes of Part 5 as a profit from a loan relationship of the company.

(4) The credits to be brought into account in respect of the loan relationship are to be determined on the amortised cost basis of accounting.

(5) Subsection (6) applies if the return to any extent represents profits of the firm in respect of which the company is chargeable to corporation tax (whether for the same or any earlier accounting period).

(6) The charge to corporation tax is to be reduced to such extent as is just and reasonable.