Loan relationships—anti-avoidance: related transactions not at arm's length
Loan relationships—anti-avoidance: related transactions not at arm's length

The following Tax guidance note provides comprehensive and up to date legal information covering:

  • Loan relationships—anti-avoidance: related transactions not at arm's length
  • The G20/OECD Base Erosion and Profit Shifting (BEPS) project
  • Loan relationships transactions not at arm's length—the rule
  • Arm's length—definition
  • Exceptions
  • Exception: application of transfer pricing rules
  • Exception: intra-group transactions
  • Exception: creation of the loan relationship
  • Exception: debits on acquisition for less than market value
  • Exception: foreign exchange gains and losses (FOREX)
  • more

The general rule is that the credits (broadly, but not necessarily, profits) and debits (broadly, but not necessarily, losses) arising to a company from its corporate finance transactions which are to be brought into account for tax purposes under the loan relationships regime are computed in accordance with those recognised in determining a company's profit or loss (as disclosed in the company's relevant accounts) for an accounting period in accordance with generally accepted accounting practice (ie the tax follows the accounts).

For more on the basic computational rules that permeate the loan relationships regime, and its general reliance on GAAP, see Practice Note: Taxation of loan relationships.

There are, however, a number of specific circumstances in which the tax rules necessarily depart from this basic reliance on the company's accounting treatment—ie the loan relationship regime incorporates specific statutory rules that will override the accounting treatment in particular situations.

The provisions in the loan relationship regime that override the accounting treatment are included primarily to ensure that a company's financing transactions are taxed appropriately and broadly in accordance with the economic reality. They are also needed to ensure that companies are unable to avoid tax by artificially manipulating circumstances in an attempt to obtain a specific type of accounting treatment and from that some form of tax advantage.

The loan relationships regime contains its own collection