CTM15530 | Distributions: general: exclusion of certain interest or other amounts
From HM Revenue & Customs · Company Taxation Manual
F, and
F can recharacterise interest as a distribution. In some circumstances companies can benefit from this.
For example, there may be a loan agreement that provides for the payment of interest at a fixed rate plus a minute share of the borrowing company's profits. The security will fall within and all the interest will be treated as a distribution. The consequences are that, overall, the parties could be better off at the exchequer’s expense as:
the borrower will get no relief for the interest paid, but
the lender will receive the interest as franked investment income rather than taxable income.
prevents this happening. It stops a company treating interest or other amounts paid to another company within the charge to CT as a distribution within any part of F.
This legislation aims to counter the contrived use of F for tax avoidance by arranging for what is in substance interest to be treated as a distribution by being brought within its terms. But it applies whenever its terms are met, not just if avoidance is present.
applies to any interest or other distribution which is paid to another company within the charge to Corporation Tax, is paid in respect of securities within , and does not fall within E.
Such interest or other distribution is not treated as a distribution unless the application of is excluded by . prevents applying where the recipient of the distribution is exempt from tax on the distribution.