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HMRC internal manual

Corporate Finance Manual

Loan relationships: tax avoidance: forex: non-arm’s length transactions: non arm's length debt


CTA09/S444(6) makes it clear that CTA09/S447-452 and not S444 applies to exchange gains and losses.

CTA09/S447-452 is intended to apply primarily to

  • borrowings by a thinly capitalised UK company (there is a full discussion of thin capitalisation in the International Manual, INTM560000+), and
  • loans made by a UK company to an overseas subsidiary which fulfil an equity function.

The rules apply in four situations.

  • Where a company has a debtor loan relationship, and interest (or other outgoings or losses) on the debt are either wholly or partly restricted for tax purposes under the transfer pricing provisions of TIOPA10/Part 4 (CTA09/S447 - CFM38530).
  • Where a company has a debt liability (a debtor loan relationship) and all or part of the interest on the debt is treated as a distribution by CTA10/Part 23 (or, for periods beginning before 1 April 2004, by ICTA88/S209(2)(da)) (CTA09/S448 - CFM38550).
  • Where a company has lent money (a creditor loan relationship) and either the loan would not have been made at all between parties dealing at arm’s length, or a lower amount would have been lent (CTA09/S449 - CFM38580).
  • Where a company would be treated as having a debtor relationship if a claim were made under TIOPA10/Part 4 and there is a connection between this company and the creditor company (CTA09/S452 - CFM38590).