Corporation Tax Act 2009

Deemed debt releases on impaired debts becoming held by connected company U.K.

361 Acquisition of creditor rights by connected company at undervalue U.K.

(1) This section applies if—

(a) a company (“D”) is a party to a loan relationship as debtor,

(b) another company (“C”) becomes a party to it as creditor,

(c) immediately after it does so C and D are connected,

(d) in a case where the person from whom C acquires its rights under the loan relationship is a company, in the period of account in which C acquires them there is no connection between C and that company,

(e) the amount or value of any consideration given by C for the acquisition is less than the pre-acquisition carrying value (see subsection (5)), and

[F1 (f) the equity-for-debt exception (see section 361C) does not apply.]

F2 (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3) C is treated as releasing its rights under the loan relationship when it acquires them.

(4) The amount treated as released is the amount of the difference referred to in subsection (1)(e).

(5) In subsection (1)(e) “the pre-acquisition carrying value” means the amount which would be the carrying value of the liability under the loan relationship in D's accounts if a period of account had ended immediately before C became a party to it.

(6) For the purposes of subsection (5) the carrying value is determined taking no account of—

(a) accrued amounts, or

(b) amounts paid or received in advance.

[F3 (7) Subsections (3) and (4) are subject to section 361D (corporate rescue: debt released shortly after acquisition).]

Textual Amendments

F1 S. 361(1)(f) substituted (with effect in accordance with Sch. 7 Pt. 6 of the amending Act) by Finance (No. 2) Act 2015 (c. 33), Sch. 7 para. 35(2)

F2 S. 361(2) omitted (with effect in accordance with Sch. 7 Pt. 6 of the amending Act) by virtue of Finance (No. 2) Act 2015 (c. 33), Sch. 7 para. 35(3)

F3 S. 361(7) inserted (with effect in accordance with Sch. 7 Pt. 6 of the amending Act) by Finance (No. 2) Act 2015 (c. 33), Sch. 7 para. 35(4)

Modifications etc. (not altering text)

C1 Pt. 5 modified (with effect in accordance with s. 148 of the amending Act) by Finance Act 2012 (c. 14), s. 88(1)(2)(7) (with s. 147, Sch. 17)

C2 S. 361(1)(a)-(c) modified (17.7.2012) by Finance Act 2012 (c. 14), s. 23(8)-(12)

F4 361A The corporate rescue exception U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F4 Ss. 361A, 361B omitted (with effect in accordance with Sch. 7 Pt. 6 of the amending Act) by virtue of Finance (No. 2) Act 2015 (c. 33), Sch. 7 para. 36

F4 361B The debt-for-debt exception U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F4 Ss. 361A, 361B omitted (with effect in accordance with Sch. 7 Pt. 6 of the amending Act) by virtue of Finance (No. 2) Act 2015 (c. 33), Sch. 7 para. 36

[F5 361C The equity-for-debt exception U.K.

(1) For the purposes of section 361 the “equity-for-debt exception” applies if the following two conditions are met.

(2) The first condition is that the acquisition is an arm's length transaction.

(3) The second condition is that the consideration given by C for the acquisition consists only of—

(a) shares forming part of the ordinary share capital of C,

(b) shares forming part of the ordinary share capital of a company connected with C, or

(c) an entitlement to shares within paragraph (a) or (b).]

Textual Amendments

F5 Ss. 361A-361C inserted (with effect in accordance with Sch. 15 para. 3(2) of the amending Act) by Finance Act 2010 (c. 13), Sch. 15 para. 2(5) (with Sch. 15 para. 4)

[F6 361D Corporate rescue: debt released shortly after acquisition U.K.

(1) This section applies if—

(a) the case is one in which section 361 would otherwise apply,

(b) within 60 days after C becomes a party to the loan relationship as creditor, C or a company connected with C releases D's liability to pay an amount under the loan relationship, and

(c) the corporate rescue conditions are met.

(2) If the release is of the whole debt, section 361 does not apply to the acquisition of the rights by C.

(3) If the release is of part of the debt, the amount that C is treated by section 361 as having released when it acquired the rights under the loan relationship is reduced (but not below nil) by the amount that is actually released as mentioned in subsection (1)(b).

(4) The corporate rescue conditions are—

(a) that the acquisition by C of its rights under the loan relationship is an arm's length transaction,

(b) that immediately before C became a party to the loan relationship as creditor, it was reasonable to assume that, without the release and any arrangements of which the release forms part, there would be a material risk that at some time within the next 12 months the company would have been unable to pay its debts.

(5) For the purposes of subsection (4)(b), a company is unable to pay its debts if—

(a) it is unable to pay its debts as they fall due, or

(b) the value of the company's assets is less than the amount of its liabilities, taking into account its contingent and prospective liabilities.]

Textual Amendments

F6 S. 361D inserted (with effect in accordance with Sch. 7 Pt. 6 of the amending Act) by Finance (No. 2) Act 2015 (c. 33), Sch. 7 para. 37

362 Parties becoming connected where creditor's rights subject to impairment adjustment [F7 etc] U.K.

(1) This section applies if—

(a) a company (“D”) is a party to a loan relationship as debtor, [F8 and]

(b) another company (“C”) which—

(i) is a party to the loan relationship as creditor, and

(ii) is not connected with D,

becomes connected with D, F9 ...

F10 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(2) C is treated as releasing its rights under the loan relationship when C and D become connected.

[F11 (3) The amount treated as released is the amount (if any) by which the pre-connection carrying value in D's accounts exceeds the pre-connection carrying value in C's accounts.

(4) In subsection (3)—

• “the pre-connection carrying value in D's accounts” means the amount that would be the carrying value of the liability representing the loan relationship in D's accounts if a period of account had ended immediately before C and D became connected, and

• “the pre-connection carrying value in C's accounts” means—

  (a)

  in any case where C was a party to the loan relationship as creditor on the last day of the period of account ending immediately before the one in which C and D became connected, the cost of the asset representing the loan relationship which would be given on that day on an amortised cost basis of accounting, and

  (b)

  in any other case, the amount or value of any consideration given by C for the acquisition of the asset representing the loan relationship.]

(5) For the purposes of subsection (4) [F12 no account is to be taken of—]

(a) accrued amounts, [F13 or]

(b) amounts paid or received in advance, F14 ...

F14 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F15 (6) Subsections (2) and (3) are subject to section 362A (corporate rescue: debt released shortly after connection arises).]

Textual Amendments

F7 Word in s. 362 heading inserted (with effect in accordance with s. 23(4) of the amending Act) by Finance Act 2012 (c. 14), s. 23(2)(d)

F8 Word in s. 362(1)(a) inserted (with effect in accordance with s. 23(4) of the amending Act) by virtue of Finance Act 2012 (c. 14), s. 23(2)(a)(ii)

F9 Word in s. 362(1)(b) omitted (with effect in accordance with s. 23(4) of the amending Act) by virtue of Finance Act 2012 (c. 14), s. 23(2)(a)(ii)

F10 S. 362(1)(c) omitted (with effect in accordance with s. 23(4) of the amending Act) by virtue of Finance Act 2012 (c. 14), s. 23(2)(a)(i)

F11 S. 362(3)(4) substituted (with effect in accordance with s. 23(4) of the amending Act) by Finance Act 2012 (c. 14), s. 23(2)(b)

F12 Words in s. 362(5) substituted (with effect in accordance with s. 23(4) of the amending Act) by Finance Act 2012 (c. 14), s. 23(2)(c)(i)

F13 Words in s. 362(5)(a) inserted (with effect in accordance with s. 23(4) of the amending Act) by Finance Act 2012 (c. 14), s. 23(2)(c)(ii)

F14 S. 362(5)(c) and the word immediately preceding it omitted (with effect in accordance with s. 23(4) of the amending Act) by virtue of Finance Act 2012 (c. 14), s. 23(2)(c)(iii)

F15 S. 362(6) inserted (with effect in accordance with Sch. 7 Pt. 6 of the amending Act) by Finance (No. 2) Act 2015 (c. 33), Sch. 7 para. 38

[F16 362A Corporate rescue: debt released shortly after connection arises U.K.

(1) This section applies if—

(a) the case is one in which section 362 would otherwise apply,

(b) within 60 days after C and D become connected, C releases D's liability to pay an amount under the loan relationship, and

(c) the corporate rescue conditions are met.

(2) If the release is of the whole debt, section 362 does not apply by reason of C and D becoming connected.

(3) If the release is of part of the debt, the amount that C is treated by section 362 as having released when it became connected with D is reduced (but not below nil) by the amount actually released.

(4) The corporate rescue conditions are—

(a) that C and D became connected as a result of an arm's length transaction, and

(b) that immediately before C and D became connected it was reasonable to assume that, without the connection and any arrangements of which the connection forms part, there would be a material risk that at some time within the next 12 months D would have been unable to pay its debts.

(5) For the purposes of subsection (4)(b), a company is unable to pay its debts if—

(a) it is unable to pay its debts as they fall due, or

(b) the value of the company's assets is less than the amount of its liabilities, taking into account its contingent and prospective liabilities.]

Textual Amendments

F16 S. 362A inserted (with effect in accordance with Sch. 7 Pt. 6 of the amending Act) by Finance (No. 2) Act 2015 (c. 33), Sch. 7 para. 39

363 Companies connected for sections 361 [F17 to 362A] U.K.

(1) For the purposes of sections 361 [F18 to 362A] there is a connection between two companies at any time if condition A or B is met at that time.

(2) Condition A is that one company has control of the other.

(3) Condition B is that both companies are under the control of the same person (but see subsection (6)).

(4) For the purposes of sections 361 [F19 to 362A] there is a connection between two companies in a period of account if there is a connection between them (within subsection (1)) at any time in the period.

(5) Section 472 (meaning of “control”) applies for the purposes of this section.

(6) Condition B is not taken to be met just because two companies have been under the control of—

(a) the Crown,

(b) a Minister of the Crown,

(c) a government department,

(d) a Northern Ireland department,

(e) a foreign sovereign power, or

(f) an international organisation.

(7) Section 468 (connection between companies to be ignored in some circumstances) applies for the purposes of this section as it applies for the purposes of the provisions which apply section 466, taking references in sections 468 and 469 to the accounting period as references to the period of account.

(8) For the meaning of “international organisation”, see section 476(2) and (3).

Textual Amendments

F17 Words in s. 363 heading substituted (with effect in accordance with Sch. 7 Pt. 6 of the amending Act) by Finance (No. 2) Act 2015 (c. 33), Sch. 7 para. 40

F18 Words in s. 363(1) substituted (with effect in accordance with Sch. 7 Pt. 6 of the amending Act) by Finance (No. 2) Act 2015 (c. 33), Sch. 7 para. 40

F19 Words in s. 363(4) substituted (with effect in accordance with Sch. 7 Pt. 6 of the amending Act) by Finance (No. 2) Act 2015 (c. 33), Sch. 7 para. 40

Modifications etc. (not altering text)

C3 S. 363 applied (17.7.2012) by Finance Act 2012 (c. 14), s. 23(4)(b)

[F20 363A Arrangements for avoiding section 361 or 362 U.K.

(1) This section applies in any case where arrangements are entered into and the main purpose, or one of the main purposes, of any party in entering into them (or any part of them) is—

(a) to avoid an amount being treated as released under section 361 or 362, or

(b) to reduce the amount which is treated as released under section 361 or 362.

(2) The arrangements (or part of the arrangements) are not to achieve that effect (so that an amount, or a greater amount, falls to be treated as released under section 361 or 362).

(3) In this section “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable).]

Textual Amendments

F20 S. 363A inserted (with effect in accordance with s. 23(5)-(7) of the amending Act) by Finance Act 2012 (c. 14), s. 23(3)