Loan relationships regime meaning

In this issue: Companies and corporation tax Stamp taxes VAT Individuals and income tax Taxes management and litigation Employment taxes Budget and Finance Bills Daily and weekly news alerts New and updated content Dates for your diary Trackers Useful information Companies and corporation tax Court of Appeal decides interest on intra-group loans not restricted under transfer pricing rules but debits disallowed under unallowable purpose rule (BlackRock Holdco 5, LLC v HMRC) BlackRock Holdco 5, LLC v HMRC [2024] EWCA Civ 330 considers whether, for UK tax purposes, interest on intra‑group borrowing put in place to help fund a commercial acquisition is deductible. Two principal points were before the Court of Appeal: the transfer pricing analysis and the loan relationships unallowable purpose question. On the transfer pricing limb, the Court of Appeal allowed the taxpayer’s appeal. As a result, deductions for interest on the intra‑group loans were not curtailed by the transfer...

Blackfriars Hotel (UK) Holdings Ltd v HMRC [2024] UKFTT 1095 (TC) The taxpayer company, Blackfriars Hotel (UK) Holdings Ltd (BHHL), functioned as a holding vehicle for two subsidiaries, BHL and TTHL, each owning and running a hotel. BHHL had obtained a sizeable third‑party bank facility, the proceeds of which were used both to subscribe for shares in BHL and to advance a loan to it (the old loan). Consequent upon this financing, BHHL built up significant carried‑forward non‑trading loan relationship deficits. In December 2015, BHHL advanced two intra‑group loans: one to TTHL (the TTH loan) and another to BHL (the new loan). Thereafter, across the following four years, the company generated profits and sought to relieve them by setting off the brought‑forward deficits. HMRC refused the set‑off of those carried‑forward amounts, relying on CTA 2010, Part 14B, the regime targeting tax avoidance involving carried‑forward losses. The sole question before the FTT was whether condition A in CTA 2010, s 730G(2) was met, it having been accepted between the parties...

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This Practice Note provides a checklist in the form of a high-level summary of the key anti-avoidance rules that may apply to restrict the tax deductibility of loan interest for a corporate borrower within the charge to UK corporation tax. They include: the loan relationships regime-wide anti-avoidance rule (RAAR) the unallowable purpose rule the rules recharacterising interest as a distribution the corporate interest restriction the transfer pricing rules the hybrid and other mismatches rules non-market loans the general anti-abuse rule For these purposes, assume the borrower and lender are unrelated and deal strictly on a commercial arm’s length basis in relation to a bilateral or syndicated loan arrangement...

Dividends paid to shareholders on their shares are the form of distribution most frequently encountered—essentially a transfer of accumulated profits to the company’s owners. For corporation tax, however, distribution has a much broader scope. The Corporation Tax Act 2010 (CTA 2010) prescribes the particular situations in which a company is treated as having made a distribution. In certain instances, amounts described as interest can be recharacterised as distributions for tax purposes. The two principal scenarios are: distributions relating to non-commercial securities (category E)—see Practice Note: Types of distribution—interest recharacterised as a distribution: non-commercial securities; and distributions concerning special securities (category F), addressed in this Practice Note Exclusion from distribution treatment Some cases are excluded from being treated as distributions, as outlined below. Interest and distributions are taxed differently for a corporate recipient: interest receipts are generally brought within the loan relationships regime, whereas distributions are outside that regime...

This Practice Note deals with the chapter 9 finance company exemptions under the controlled foreign company (CFC) rules. Under Chapter 9 of Part 9A of the Taxation (International and Other Provisions) Act 2010 (TIOPA 2010), groups may elect into a regime that fully or partly relieves certain non‑trading finance profits of CFCs from the CFC charge. The purpose of the regime is to allow multinational groups to use a finance company located outside the UK to provide intra‑group loans to other non‑UK companies without suffering a substantial UK tax charge. These finance profit exemptions operate by excluding specified profits of the CFC from the charge, rather than exempting the CFC itself...