CFM96275 | Interest restriction: related parties: liabilities where a related party indirectly stands as a creditor

TIOPA10/S466

The rules also ensure that the related party provisions cannot be sidestepped by routing loans through a third party, where in reality a related party stands in the position of creditor.

In particular, where an entity (D) has a loan or other liability and a related party (G) indirectly stands in the position of creditor in respect of that liability, then the rules treat the liability as if it were with a related party.

Example

A company (D) is financed from a related party (G) through a back-to-back lending arrangement by which G lends £200m to a third party bank (C) which then on-lends £200m to a company (D).

At first glance, the loan between C and D is not made between related parties. However, the rules will take account of the fact that a related party (G) indirectly stands in the position of creditor in respect of the loan by virtue of a series of loan relationships. This means C and D will be treated as related parties in respect of the £200m loan relationship.