Finance Act 1996

[F1 Exchange gains and losses where loan not on arm’s length terms U.K.

Textual Amendments

F1 Sch. 9 para. 11A and cross-heading 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. 11 (with Sch. 23 Pt. 3 para. 25)

11A (1) Where a company has a debtor relationship in an accounting period and in the case of that accounting period— U.K.

(a) the whole of any interest or other distribution out of the assets of the company in respect of securities of the company that represent the relationship falls by virtue of [F2 section 209(2)(e)(vii)] of the Taxes Act 1988 to be regarded as a distribution for the purposes of the Corporation Tax Acts, or

(b) the profits and losses of the company fall by virtue of [F3 paragraph 1 of] Schedule 28AA to that Act (provision not at arm’s length) to be computed for tax purposes as if the loan had not been made,

any exchange gains or losses which arise in that accounting period in respect of a liability representing the debtor relationship shall be left out of account in determining the debits or credits to be brought into account for the purposes of this Chapter.

(2) Where a company has a debtor relationship in an accounting period and in the case of that accounting period—

F4 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(b) the profits and losses of the company fall by virtue of [F5 paragraph 1 of] Schedule 28AA to that Act to be computed for tax purposes as if the loan had in part not been made,

the proportionate part of any exchange gains or losses which arise in that accounting period in respect of a liability representing the debtor relationship shall be left out of account in determining the debits or credits to be brought into account for the purposes of this Chapter.

(3) In sub-paragraph (2) above, the “proportionate part” of an exchange gain or loss is that part which bears to the whole the proportion which—

F6 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(b) F7 ... the part of the loan that falls to be treated as if it had not been made bears to the whole of the loan.

(4) Where—

(a) a company has a creditor relationship in an accounting period,

(b) the transaction giving rise to the loan is such that it would not have been entered into at all if the parties had been dealing at arm’s length, and

(c) there is no corresponding debtor relationship such that there would, or would apart from section 84A(2) to (10) of this Act, fall to be brought into account for the purposes of this Chapter, in respect of exchange gains or losses from that debtor relationship, debits or (as the case may be) credits corresponding to, and of the same amount as, the credits or debits that would (apart from this paragraph) fall to be brought into account for the purposes of this Chapter in respect of exchange gains or losses from the creditor relationship,

any exchange gains or losses which arise in that accounting period in respect of an asset representing the creditor relationship shall be left out of account in determining the debits or credits to be brought into account for the purposes of this Chapter.

(5) Where—

(a) a company has a creditor relationship in an accounting period,

(b) the circumstances are such that, had the parties to the transaction giving rise to the loan been dealing at arm’s length, F8 ... the amount of the loan would have been an amount (referred to in sub-paragraph (6) below as “the adjusted amount”) greater than nil but less than its actual amount, and

(c) there is no such corresponding debtor relationship as satisfies, in relation to that creditor relationship, the condition set out in sub-paragraph (4)(c) above,

sub-paragraph (4) above shall not apply, but the excess portion of any exchange gain or loss which arises in the accounting period in respect of an asset representing the creditor relationship shall be left out of account in determining the debits or credits to be brought into account for the purposes of this Chapter.

(6) In sub-paragraph (5) above, the “excess portion” of an exchange gain or loss is so much of the gain or loss as remains after subtracting that part which bears to the whole the proportion which the adjusted amount bears to the amount of the loan.

[F9 (7) Where—

(a) a company would be treated as having a debtor relationship in any accounting period if a claim were made under paragraph 6D(2) of Schedule 28AA to the Taxes Act 1988 in relation to that period, and

(b) for that period there is a connection between that company and the company which would have the corresponding creditor relationship,

it shall be assumed that such a claim is made for the purpose of determining the debits or credits to be brought into account for the purposes of this Chapter in respect of any exchange gains or losses arising in that period in respect of the liability representing that debtor relationship.

(8) Section 87(3) and (4) (connection between a company and another person) apply for the purposes of sub-paragraph (7)(b) above as they apply for the purposes of section 87.

(9) Where, by virtue of any claim made (or assumed by virtue of sub-paragraph (7) above to be made) under paragraph 6D(2) of Schedule 28AA to the Taxes Act 1988, more than one company is treated for any purpose as having a debtor relationship represented by the same liability—

(a) the total debtor exchange gains must not exceed the total creditor exchange losses, and

(b) the total debtor exchange losses must not exceed the total creditor exchange gains.

(10) For the purposes of sub-paragraph (9) above—

(a) any reference to the total debtor exchange gains is to the total amount of the credits brought into account for the purposes of this Chapter in respect of exchange gains from those debtor relationships,

(b) any reference to the total debtor exchange losses is to the total amount of the debits brought into account for those purposes in respect of exchange losses from those debtor relationships,

(c) any reference to the total creditor exchange gains is to the total amount of the credits brought into account for those purposes in respect of exchange gains from the corresponding creditor relationship, and

(d) any reference to the total creditor exchange losses is to the total amount of the debits brought into account for those purposes in respect of exchange losses from that relationship.]]

Textual Amendments

F2 Words in Sch. 9 para. 11A(1)(a) substituted (with effect in accordance with s. 37 of the amending Act) by Finance Act 2004 (c. 12), s. 34(4)(a)

F3 Words in Sch. 9 para. 11A(1)(b) inserted (with effect in accordance with s. 37 of the amending Act) by Finance Act 2004 (c. 12), s. 34(4)(b)

F4 Sch. 9 para. 11A(2)(a) repealed (with effect in accordance with s. 37 of the amending Act) by Finance Act 2004 (c. 12), s. 34(4)(c), Sch. 42 Pt. 2(2)

F5 Words in Sch. 9 para. 11A(2)(b) inserted (with effect in accordance with s. 37 of the amending Act) by Finance Act 2004 (c. 12), s. 34(4)(d)

F6 Sch. 9 para. 11A(3)(a) repealed (with effect in accordance with s. 37 of the amending Act) by Finance Act 2004 (c. 12), s. 34(4)(e), Sch. 42 Pt. 2(2)

F7 Words in Sch. 9 para. 11A(3)(b) repealed (with effect in accordance with s. 37 of the amending Act) by Finance Act 2004 (c. 12), s. 34(4)(f), Sch. 42 Pt. 2(2)

F8 Words in Sch. 9 para. 11A(5)(b) repealed (with effect in accordance with s. 37 of the amending Act) by Finance Act 2004 (c. 12), s. 34(4)(g), Sch. 42 Pt. 2(2)

F9 Sch. 9 paras. 11A(7)-(10) inserted (with effect in accordance with Sch. 5 para. 15(2)(3) of the amending Act) by Finance Act 2007 (c. 11), Sch. 5 para. 15(1)