Commentary

D1.785 Loan relationship transactions not at arm's length

Corporate tax
Corporate tax | Commentary

D1.785 Loan relationship transactions not at arm's length

Corporate tax | Commentary

Loan relationships—Anti-avoidance provisions

D1.785 Loan relationship transactions not at arm's length

Where a related transaction (see 'Related transactions' at D1.703) takes place other than at arm's length, the debits and credits to be brought into account for the purposes of the loan relationships legislation are required to be determined on the assumption that the transaction was entered into on independent terms. These are defined as the terms which would have applied if the transaction had been entered into between1 knowledgeable and willing parties dealing at arm's length2. (There is one exception to this rule and this is that where a loan relationship is purchased at an undervalue, the acquirer's acquisition cost is not adjusted to market value, even where under this provision the vendor is deemed to have disposed of the loan relationship at its market value3).

This general rule does not apply where:

  1.  

    •     the transaction falls within the scope of the transfer pricing provisions (see Division B4.1) and either its terms are adjusted to market value or are accepted as being at market value for the purposes of that provision4 or

  2.  

    •     CTA 2009, s 340 (see D1.767) applies to the

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