Taxation of loan relationships—connected companies relationships
Taxation of loan relationships—connected companies relationships

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

  • Taxation of loan relationships—connected companies relationships
  • What is a connected companies relationship?
  • Test of connection
  • Control
  • Exceptions
  • Financial trader exception
  • Conditions
  • Requirement to use amortised cost basis of accounting
  • What is the amortised cost basis of accounting?
  • Amortised cost and fair value hedges
  • More...

Specific rules exist within the loan relationships regime in Part 5 of the Corporation Tax Act 2009 (CTA 2009) for loan relationships between connected companies—these are referred to as ‘connected companies relationships’.

Where a company is party to a connected companies relationship:

  1. the debits and credits which the company brings into account for the purposes of Part 5 in respect of that loan relationship must be determined on an amortised cost basis of accounting (regardless of the actual accounting method used by the company in its financial statements), and

  2. the impairment losses and release debits that can be claimed by a creditor company on that relationship are restricted

This Practice Note looks at:

  1. when a connected companies relationship exists for the purposes of the loan relationships rules (including a consideration of the financial trader exception)

  2. the requirement to use the amortised cost basis of accounting in relation to connected companies relationships for corporation tax purposes and its impact

  3. the treatment of impairment loses and debt releases on connected companies relationships (however this is discussed in much more detail in Practice Note: Impairment and debt releases—connected companies)

For a much broader discussion of the computational rules governing how profits and losses on loan relationships are calculated and brought into account for corporation tax purposes, see Practice Note: Taxation of loan relationships. For the definition of a loan relationship

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