Commentary

D1.720 Loan relationships—Connected parties

Corporate tax
Corporate tax | Commentary

D1.720 Loan relationships—Connected parties

Corporate tax | Commentary

D1.720 Loan relationships—Connected parties

Where a company stands in the position of a creditor or debtor in respect of a loan relationship and is connected with the other party (debtor or creditor) to that relationship the basic rule is that both parties are required to account for that loan relationship using an amortised cost basis1.

However, the basic rule does not apply to a company which is in a creditor relationship in respect of a debt in an accounting period and which satisfies the conditions listed below2. In such a case the creditor company may use a fair value basis, but the debtor company must still use an amortised cost basis3.

Where the creditor company is a financial trader, the relevant conditions are as follows4:

  1.  

    •     Condition A: an integral part of its trade consists in buying and selling creditor relationships

  2.  

    •     Condition B: the asset concerned is acquired in the course of the company's trade

  3.  

    •     Condition C: the asset is either listed on a recognised stock exchange or its redemption takes place within 12 months of issue

  4.  

    •     Condition D:

To continue reading
View the latest version of this document, as well as thousands of others like it, sign in to TolleyLibrary or register for a free trial