CFM5603c - Taxing loan relationships: connected parties and late interest: CIS based close companies

Conditions – CIS based close companies

A close company and a lender listed in CFM5603 (or in CFM5726) are not considered to be connected through participation if the following conditions are met.

For accounting periods ending on or after 10 December 2003 and ending before 4 March 2005

The debtor company is a CIS-based close company or the lender is a CIS limited partnership.

For accounting periods ending on or after 1 April 2007

The debtor company is a CIS-based close company and a small or medium-sized enterprise, and the lender is not resident in a non-qualifying territory

or

The lender is a CIS limited partnership and no member of the partnership is resident in a non- qualifying territory, and the debtor company is a small or medium-sized enterprise.

For accounting periods ending on or after 4 March 2005 and before 1 April 2007 – Commencement provisions for new debtor relationships

If the debtor relationship arises under a new contract made on or after 4 March 2005, the conditions applicable to accounting periods ending on or after 1 April 2007 will apply to that debtor relationship at all times on or after 4 March 2005. See paragraph 4(1) of Schedule 8 F (No2) A 2005.

For accounting periods ending on or after 4 March 2005 and before 1 April 2007 – Transitional provisions for existing debtor relationships

Where a debtor relationship exists under a contract made before 4 March 2005 and continues unchanged throughout the period up to and including 31 March 2007, or where there is a change in the pre-existing contract terms on or after 4 March 2005 and before 1 April 2007, see the detailed transitional provisions at CFM5603d.

Definitions

A “CIS-based close company” is a company which is only a close company because of the attribution under sections 416(6) and 417(3)(a) ICTA of the rights and powers of partners in a CIS limited partnership to another of the partners.

A “CIS limited partnership” is a limited partnership which is a collective investment scheme or which would be a collective investment scheme if it were not a body corporate.

A “collective investment scheme” means a collective investment scheme within the meaning of section 235 of the Financial Services and Markets Act 2000 (2000 c.8). See also the Financial Services and Markets Act 2000 (Collective Investment Schemes) Order 2001 (S.I. 2001/1062) as amended for arrangements which do not amount to a collective investment scheme.

“Non-qualifying territory” has the meaning given by paragraph 5E of Schedule 28AA ICTA.

“Resident” has the meaning given by paragraph 5B(6) of Schedule 28AA ICTA.

“Small or medium-sized enterprise” has the meaning given by paragraph 5D of Schedule 28AA ICTA. See INTM432112 for further guidance.