D4.807 Company loan relationships

Corporate tax
Corporate tax | Commentary

D4.807 Company loan relationships

Corporate tax | Commentary

D4.807 Company loan relationships

The provisions in this article apply only to companies where an election has not been made for exemption for the profits of a foreign permanent establishment (D4.801). For details of the double tax relief provisions that generally apply equally to companies and individuals see Division E6.4.

Specific provisions apply in relation to the availability of double tax relief for:


    (a)     foreign source loans


    (b)     interest on loan relationships that accrues at a time when the company is not a party to the loan; and


    (c)     certain non-trading credits from a loan relationship

Foreign source loans

Under the company loan relationships legislation (see Division D1.7) profits arising to a company on its loan relationships are generally chargeable to tax as income. To the extent that a company is a party to a loan relationship for the purposes of its trade, profits (credits) arising from the relationship are brought into account in computing the profits of the trade. Corresponding expenses (debits) in connection with a loan relationship entered into for the purposes of a trade are expenses of that trade and are deductible in computing the profits of that trade1.

Profits from loan relationships of a company which are not for trade purposes (non-trading credits) are chargeable to corporation tax, even where the loan has a foreign source. Expenses and losses incurred from such loan relationships (non-trading debits) are automatically deducted from non-trading credits in computing either the amount chargeable or, if the debits exceed the credits, the 'non-trading deficit' for

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