CTM61700 - Close companies: loans to participators: companies controlled by a close company

ICTA88/S422 (1)

Section 422 makes sure that a loan made by a company (whether close or not) which is controlled by a close company, is caught by ICTA88/S419. It does not operate where ICTA88/S422 (4) applies (see CTM61730).

A loan by a company controlled by a close company to a participator in the controlling company is normally caught directly by ICTA88/S419 (1). This will be the case if the lending company is close because the definition of ‘participator’ in ICTA88/S419 (7) includes participators in the controlling company.

However, by itself, Section 419 does not catch a loan made by a company which is not close (for example, because it is non-resident).

So, for example a non-resident subsidiary company may be set up or acquired and loans made to participators in the parent company. A loan out of money subscribed for share capital or out of existing funds of that subsidiary to a participator of the close company is brought within Section 419, by Section 422 (1).