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HMRC internal manual

Corporate Finance Manual

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HM Revenue & Customs
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Deemed loan relationships: shares with guaranteed returns: outstanding third party obligations

Shares subject to outstanding third party obligations

This guidance applies to companies that hold shares up to 21 April 2009

CTA09/S524 applies for the purposes of CT in relation to a company if at any time in an accounting period:

  • that company (‘the investing company’) holds a share in another company (‘the issuing company’),
  • the share is subject to third party obligations, and
  • the share is an interest-like investment.

For accounting periods ending before 22 March 2006, the section applies if the conditions are met ‘at any time’ in an accounting period. However, the effect of the transition rules in FA96/S91G (CFM45290) is that only increases in value between the dates the share starts and ceases to satisfy the conditions are brought into account for loan relationships purposes. For accounting periods ending on or after 22 March 2006, CTA09/S523 makes it clear that the section applies ‘in relation to the times in a company’s accounting period during which’ the conditions are met.

Where the section applies, the loan relationships rules have effect for the accounting period of the investing company (or, for accounting periods ending on or after 22 March 2006, during those times) as if:

  • the share were rights under a creditor relationship of that company, and
  • any distribution in respect of the share were not a distribution falling within ICTA88/S209(2)(a) or (b).

The reason a distribution (such as a dividend) is treated as not being a distribution is to override CTA09/S465 which prevents a distribution from being taken into account for the purposes of loan relationships.