Commentary

D1.792 Loan relationships—Shares accounted for as liabilities

Corporate tax
Corporate tax | Commentary

D1.792 Loan relationships—Shares accounted for as liabilities

Corporate tax | Commentary

D1.792 Loan relationships—Shares accounted for as liabilities

Where certain conditions are satisfied a company (investing company) that holds shares in another company is required to treat the shares for tax purposes as if they were a creditor relationship1. (A share is not defined other than that it excludes a share in a building society, as the CTA 2009, s 476(1) definition of a share only applies as regards the exclusion it contains for a share in a building society2).

Where the conditions are met, any distributions received by the investing company in respect of the share are not treated as distributions and thus have to be included in computing the profits arising in respect of the deemed creditor relationship3. (The provision which deems a distribution received in respect of such a share not to be a distribution for tax purposes does not prevent the dividend from being treated as a dividend for the purposes of determining whether the requirements of the CFC acceptable distribution policy contained in ICTA 1988, Sch 25, Pt I have been satisfied4.) Further, the investing company is not permitted to claim relief for any debit arising in respect of the share except in the case of a foreign exchange loss5.

There is no requirement that the investing company should follow a particular accounting treatment in respect of the share.

Qualifying conditions

Such treatment applies where the following conditions are satisfied:

  1.  

    •     the share would be accounted for by the issuing company as a liability in accordance with generally accepted

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