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HMRC internal manual

Corporate Finance Manual

Deemed loan relationships: shares with guaranteed returns: outstanding third party obligations: meaning of outstanding third party obligations

Meaning of outstanding third party obligations

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

CTA09/S524(2) to (4) define what is meant by ‘outstanding third party obligations’. This is where -

  • the share will or might under any ‘relevant arrangements’ be subject to (or for shares held before 22 March 2006, is subject to), obligations of any description in CTA09/S524(4),
  • the obligations of the investing company are obligations which, under any relevant arrangements (see below), will or might be discharged directly or indirectly by any other person (or for shares held by the company before 22 March 2006 are obligations of a person other than the investing company), and
  • the obligations are yet to be discharged.

‘Arrangements’ are defined in S524(5) as including any agreement or understanding (whether or not legally enforceable). Such arrangements are relevant if they were entered into at any time on or before the share was issued.

The descriptions of obligations set out in CTA09/S524(4) are -

  • obligations to meet unpaid calls on the share;
  • any other obligation to make a contribution to the capital of the issuing company that could affect the value of the share.

A contribution to the capital of a company would include things like ‘capital contributions’, or subscription for further shares. Subscription for loan capital would also come within the term, but in normal cases the corresponding liability to repay would mean the value of the issued shares would not be affected.

So returning to scheme 1 in CFM45020, the shares held by UK plc have unpaid calls on them which are to be met in a year’s time by the bank. As those calls are of the description of obligations in S524(5)(a), are not yet discharged and are to be met by a person other than UK plc, the shares in question are ‘subject to outstanding third party obligations’ for the purposes of S524.