REV BN 13: Loan Relationships and Derivative Contracts
Who is likely to be affected?
1. All companies within the scope of corporation tax are potentially affected.
General description of the measure
2. The measure amends rules governing the transfer of loan relationships and derivative contracts between group companies. It will provide greater certainty and remove opportunities for avoidance. In addition it will tackle a loan relationships avoidance scheme which seeks to exploit the connected party rules.
Operative date
3. The amendments to the loan relationships and derivative contracts rules dealing with intra-group transfers and novations apply to intra-group transfers where the date of transfer falls on or after 9 April 2003.
4. The change to the loan relationship connected party rules has effect for interest payments which become due and payable on or after 9 April 2003 and discount accruing on or after 9 April 2003.
Current law and proposed revisions
5. The existing rules for loan relationships in FA 1996 and derivative contracts in FA 2002 will be amended.
6. The measure will ensure that where loan relationships or derivative contracts are transferred intra-group then:
- profits cannot fall out of charge where companies use mark-to-market accounting;
- the accounts treatment of exchange gains and losses can be followed for tax; and
- where such contracts are novated intra-group (that is where one group member takes over the rights and obligations of another group member by means of a new agreement) the current tax treatment is put beyond any doubt.
7. It will also amend the connected party rules to stop a loan relationship avoidance scheme which attempts to create an allowable deduction for interest (or discount) which is accrued but never paid.
Further advice
8. If you have any questions about this change, please contact the Public Enquiry Unit on 020 7438 6420 to 6425.
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