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HMRC internal manual

Corporate Finance Manual

Deemed loan relationships: disguised interest: excluded shares: ‘relevant shares’


Relevant shares

CTA09/S486E(5) defines ‘relevant shares’ as:

  1. Fully paid-up shares of a ‘relevant company’ (see CFM42180)
  2. Shares, other than shares in a ‘relevant company’ that fall within the rules for ‘shares accounted for as liabilities’ at CTA09/PT6/CH6A (CFM45500). Briefly, such shares are those:
* that would be accounted for in accordance with GAAP as a liability by the company in which they are shares, and
* which produce for the company holding the shares a return in relation to any amount which is economically equivalent to interest.

CTA09/S486E(7) provides that a company is a relevant company if:

  • it and the holding company are connected companies
  • it is a relevant joint venture company or
  • it a controlled foreign company

Meaning of connected companies

Connected companies are those that are connected within the meaning of connected used for loan relationship purposes at CTA09/S466.

Joint venture company

To be a joint venture company for these purposes, a company must be one of two persons who, taken together, control it.

Additionally, two ‘40% tests’ taken from the legislation for Controlled Foreign Companies must be passed. Although these tests have been taken from the CFC legislation, the tests do not apply only to situations where there is a CFC (although, of course, do apply to such situations).

The two 40% tests are at ICTA88/755D(3) and (4) and apply to this definition of ‘joint venture company’ in the same manner that it does for the CFC rules with the exception that no rights and powers are attributed to a person by ICTA88/S755D(6)(c) or (d). More detail on the CFC tests can be found at INTM202020.

Controlled foreign company (CFC)

A relevant company includes a {controlled foreign company INTM19000} under Part 10 of TIOPA10.

The current CFC regime was introduced in FA12 and replaced the previous rules. Prior to FA12, S486B defined a relevant controlled foreign company as one whose profits are apportioned to the holding company in accordance with ICTA88/S752 or are not so apportioned because of an exemption.