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HMRC internal manual

Corporate Finance Manual

Loan relationships: connected companies and impairment: debtors: deemed releases of impaired debt: deemed releases on or after 27 February 2012: anti-avoidance

Section 363A CTA 2009

CTA09/S363A is a targeted anti-avoidance rule that was introduced by Finance Act 2012. The rule applies to arrangements entered into on or after 27 February 2012, or arrangements entered into before then but where a deemed release is or would have been made after 27 February 2012. Where such arrangements are entered into with the main purpose or one of the main purposes of avoiding or reducing the amount of a deemed release under CTA09/S361 or S362, those arrangements are in effect nullified. Hence, the deemed release that would have arisen in the absence of the arrangements is brought into charge.

It is commonly the case in company takeovers that the connected company debts of ‘target’ companies will be released pre-sale down to their recoverable amounts, or for the purchaser to procure that it will arrange for the target to discharge a given portion of the loan immediately following the purchase, in return for the lender agreeing to waive the balance of the debt. Third party debts may be released pre-sale to ensure the utilisation of available losses, or the third party may agree to treat its loan as discharged by the issue of ordinary shares in the ‘target’, with a view to the lender selling its shares to the purchaser at the time at which the acquisition of the target takes place.

Transactions undertaken for the purposes set out above will not in themselves trigger the application of CTA09/S363A, nor will the presence of other features of commercial debt restructuring such as those described CFM33202.

CTA09/S363A will not normally have the effect of overriding a prior debt-equity swap under CTA09/S322 (CFM33200), or the previous application of the group continuity rules. Nor will it override the exceptions to the deemed release charge inserted by FA 2010 in CTA09/S361A, S361B and S361C (CFM35530 - CFM35560); the use of these exceptions would not in itself be regarded as abusive. See the examples at CFM35595.

All matters relating to the application of CTA09/S363A, including all clearance applications received, should be referred to the Financial Products Team.