Interest restriction: related parties: general rule
The general rules is that A and B will be related parties on a particular day where any one of three conditions is satisfied:
The consolidation condition
A and B will meet this condition if:
- Their financial results for a period are required to be comprised in group accounts.
- Their financial results for the period would be required to be comprised in group accounts, but for the application of an exemption.
- Their financial results for a period are actually comprised in group accounts.
Group accounts means accounts prepared under s399 of the Companies Act 2006, or any corresponding provision of the law of a territory outside the United Kingdom.
The participation condition
A and B will meet this condition if, within the period of six months beginning or ending with that day, either of the below are met:
- Either A or B directly or indirectly participates in the management, control or capital of the other.
- The same person or persons directly or indirectly participates in the management, control or capital of both A and B.
Whether a company participates in the management, control or capital of the other is determined in the same way as for transfer pricing.
Where either A or B is a securitisation company, they are not treated as related parties if this treatment only arises by virtue of the securitisation company being held by a trustee of a settlement with the other party being a settlor of that settlement.
A Ltd has one wholly owned subsidiary (B Ltd) which it disposes of to an unrelated party on 1 April 2017. The participation condition will be met up to this date because A Ltd directly controls B Ltd. A Ltd and B Ltd will continue to be related parties up until 1 October 2017, however, because this is six months from the day the condition was last met.
The 25% investment condition
A and B will meet this condition on any day where either A or B has a 25% investment in the other or a third person has a 25% investment in both A and B.