SolvedCFM34030 | Loan relationships: group continuity: meaning of ‘one company replacing another’
From HM Revenue & Customs · Corporate Finance Manual
When Chapter 4 applies
CTA09/PT5/CH4 applies when, as a result of a related transaction, one group company replaces another as a party to a loan relationship. So it can only apply when the whole loan relationship is transferred.
This could happen where
a loan relationship is transferred between two companies that are members of the same group, or
a series of transactions has the effect of a transfer between two companies that are members of the same group.
Both companies must be chargeable to corporation tax in respect of the transaction - so Chapter 4 could not apply if, say, one of the companies was a charity.
As long as the company transferring the debt, and the company ultimately receiving it, have been members of the same group at any time in the course of a series of transactions, there has been a replacement for the purposes of Chapter 4.
Related transaction: example 1
JH Ltd and IK Ltd are both members of the same group of companies.
JH Ltd lends a third party, B Ltd, £10,000.
Chapter 4 could apply if, for example, JH Ltd transfers the debt to IK Ltd.
Related transaction: example 2
VG Ltd and FP Ltd are both members of the same group of companies.
VG Ltd subscribes £50,000 for a security issued by K plc.
Chapter 4 could apply if, for example VG Ltd sells the security to FP Ltd.
Series of transactions: example
JH Ltd and IK Ltd are both members of the same group of companies.
JH Ltd lends a third party, B Ltd, £10,000.
JH Ltd sells the debt to Bank Ltd.
Bank Ltd sells the debt to IK Ltd.
The series of transactions has the same effect as if there had been a related transaction between JH Ltd and IK Ltd, so Chapter 4 applies.