CFM38405 | Loan relationships: tax avoidance: transactions not at arm’s length: Overview

CTA09/S444-S446A

There are a number of rules which deal with transactions involving loan relationships that are not undertaken at arm’s length:

• S444 sets out the rule for dealing with disposals or acquisitions of loan relationships (related transactions) which are not at arm’s length (CFM38410). This rule does not apply to certain transactions, for example those within the ambit of the transfer pricing rules (CFM38420).

• S446 sets out how adjustments under the transfer pricing rules are brought into account (CFM38440).

• S446A sets out the rule to prevent companies in certain cases obtaining a deduction for notional financing costs which could otherwise arise under IFRS and New UK GAAP ([CFMXXX]).

Note that the accounting standards may also require financial instruments to be measured at fair value or present value (which is often the same as the transaction price, but could differ) - see in particular CFM21610 (IAS39 - assets), CFM21720 (IAS 39 - liabilities) and CFM23050 (FRS 102). Where financial instruments are entered into on non-arm’s length terms, it would be important to determine the reasons for this to ensure that any difference between the transaction price and the amount recognised is correctly accounted for.

In addition, CTA09/S447-S452 provide specific rules which can apply to the calculation of exchange gains and losses where transactions are not at arm’s length (CFM38500).