Commentary

D1.793 Loan relationships—Avoidance involving financial arrangements

Corporate tax
Corporate tax | Commentary

D1.793 Loan relationships—Avoidance involving financial arrangements

Corporate tax | Commentary

D1.793 Loan relationships—Avoidance involving financial arrangements

The measures discussed in this article and D1.794 are designed to counter two broad types of avoidance arrangements:

  1.  

    •     Where an asset, or right to income, is transferred by a taxpayer (the borrower) to another person (the lender) for a period of time and in accordance with generally accepted accounting practice the transaction is shown as a financing transaction in the borrower's accounts. These measures also apply where an asset was not income producing at the time of the transfer and after the transfer income arising on the asset is received by a person other than the borrower1. This is termed a Type 1 finance arrangement in the legislation and

  2.  

    •     Where the right to some or all of the income on an asset is transferred to another person via the use of a partnership and in accordance with generally accepted accounting practice the transaction is shown as a financing transaction in the accounts of the partnership, or of a member of the partnership2. This measure also applies where the income in question arose after the transfer. These are termed Type 2 and Type 3 finance arrangements in the legislation.

In the circumstance set out in the first bullet point, the transfer of the asset, or of the right to income, is disregarded in computing the transferor's taxable profits and the transferor is able to obtain tax relief for the finance charge which it includes in its accounts in accordance with generally accepted accounting practice.

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