Details of the Section
2.Subsection (1) provides for the loan relationships rules in Chapter 6 of Part 5 of the Corporation Tax Act 2009 (CTA) to be amended. The amendments are to section 362 of CTA under which, a debtor company brings in a deemed release when the debtor and creditor companies become connected and the debt is impaired, and the insertion of a new section 363A.
3.Subsection (2)(a) amends section 362 of CTA so that it applies to all cases where previously unconnected parties to a loan relationship, as debtor (D) and creditor (C) respectively, become connected. Previously section 362 applied where the creditor’s rights under the loan relationship were subject to an impairment adjustment.
4.Subsection (2)(b) substitutes new sections 362(3) and 362(4).
5.New section 362(3) changes the calculation of the amount treated as released to the amount by which the pre-connection carrying value (PCCV) of the debt in D’s accounts exceeds the PCCV of the debt in C’s accounts.
6.New subsection 362(4) defines the PCCV for D and C.
7.Subsection (2)(d) amends the title of section 362 of CTA as the new section no longer only applies to debts where the creditor’s rights are subject to an impairment adjustment.
8.Subsection (3) inserts a new section 363A in CTA which will apply to nullify the effect of arrangements that are entered into where the main purpose, or one of the main purposes, of any party entering into the arrangements is to avoid or reduce an amount treated as released under section 361 or 362. ‘Arrangements’ are defined in new section 363A(3).
9.Subsections (4) to (7) set out the commencement provisions. The amendments made to section 362 of CTA have effect where companies become connected on or after 27 February 2012. However, where the companies become connected on or after 27 February 2012 and before 1 April 2012 different subsections (3) and (4) are substituted. Subsection (3) changes the calculation of the amount treated as released to the greater of two amounts. The first amount is similar to that which currently arises under section 362(1)(c) of CTA. The second is the amount by which the pre-connection carrying value (PCCV) of the debt in D’s accounts exceeds the PCCV of the debt in C’s accounts. Subsection (4) defines the PCCV for C and D. New section 363A of CTA will have effect where arrangements are entered into on or after 27 February 2012 or, where the arrangements are entered into before that date, in relation to deemed releases arising on or after that date.
10.Subsections (8) to (12) sets out provisions applying where arrangements are entered into which lead directly or indirectly to, or in consequence of which, company “C” becomes party to a loan relationship as creditor on or after 1 December and before 27 February 2012 and C becomes connected to the debtor before 27 February 2012. ‘Arrangements’ are defined in subsection (9). Where this rule applies the conditions at sections 361(1)(a) to (c) of CTA will be deemed to be met. Thus section 361 of CTA will apply to C at the point it becomes party to the loan relationship.
11.Subsection 10 ensures, in particular, that the normal loan relationship rules apply for partnerships involving companies.
12.Subsection 11 prevents anything done after 27 February 2012, for example a change or a decision to change partnership profit shares or accounting dates, affecting the application of section 361 in accordance with subsection (8) of this section.
13.Subsection 12 prevents double taxation. If section 361 of CTA applies to a case as a result of subsections (8) to (10) of this section, then section 362 of CTA will not also apply at the point that C becomes connected to D.
