Finance Act 2002

Manufactured interest

13 (1) Section 97 is amended as follows.

(2) In subsection (1) (application of section)—

(a) for “This section applies where—” substitute “For the purposes of the Corporation Tax Acts, a company has a relationship to which this section applies in any case where—”;

(b) in paragraph (a), for “any company” substitute “the company”;

(c) in paragraph (b), for “that relationship” substitute “that loan relationship”; and

(d) after paragraph (b), add—

“and references to a relationship to which this section applies, and to a company’s being party to such a relationship, shall be construed accordingly”.

(3) For subsection (2) (treatment of the manufactured interest) substitute—

“(2) Where a company has a relationship to which this section applies—

(a) this Chapter shall have effect in relation to the company and the manufactured interest under the relationship—

(i) as it would have effect if the manufactured interest were interest payable on a loan by, or (as the case may be) to, the company and were accordingly interest under a loan relationship to which the company is a party, and

(ii) where that company is the company to which the manufactured interest is payable, as if that relationship were the one under which the real interest is payable, but

(b) the only credits or (subject to subsection (4A) below) debits to be brought into account for the purposes of this Chapter by virtue of this section in respect of a relationship are those relating to that interest,

and, subject to paragraphs (a)(ii) and (b) above, references in the Corporation Tax Acts to a loan relationship accordingly include a reference to a relationship to which this section applies.”.

(4) After subsection (3) (trading and non-trading debits and credits) insert—

“(3A) To the extent that debits or credits fall to be brought into account by a company under section 82(2) above in the case of a relationship to which this section applies, the company shall be regarded for the purposes of this Chapter as being party to the relationship for the purposes of a trade carried on by the company.”.

(5) In subsection (4) (which applies the section to a deemed manufactured payment under section 737A(5) of the Taxes Act 1988 as if such a representative payment had in fact been made) before “737A(5)” insert “736B(2) or”.

(6) After subsection (4) insert—

“(4A) Where, for the purposes of section 736B of the Taxes Act 1988, a company is the borrower under a stock lending arrangement, then (pursuant to subsection (2A) of that section (which precludes deductions or group relief for the borrower)) no debits are to be brought into account for the purposes of this Chapter by that company in respect of the deemed representative payment under that section which is treated under subsection (4) above as if it had in fact been made.”.