Section 486B | Disguised interest to be regarded as profit from loan relationship ^F1

(1)Where a company is party to an arrangement which produces for the company a return in relation to any amount which is economically equivalent to interest, Part 5 applies as if the return were a profit arising to the company from a loan relationship.^F1

(2)For the purposes of this Chapter a return produced for a company by an arrangement in relation to any amount is “economically equivalent to interest” if (and only if)—^F1

(a)it is reasonable to assume that it is a return by reference to the time value of that amount of money,^F1

(b)it is at a rate reasonably comparable to what is (in all the circumstances) a commercial rate of interest, and^F1

(c)at the relevant time there is no practical likelihood that it will cease to be produced in accordance with the arrangement unless the person by whom it falls to be produced is prevented (by reason of insolvency or otherwise) from producing it.^F1

(3)In subsection (2)(c) “ the relevant time ” means the time when the company becomes party to the arrangement or, if later, when the arrangement begins to produce a return for the company.^F1

(4)The credits and debits to be brought into account for the purposes of Part 5 in respect of the return must be determined on an amortised cost basis of accounting.^F1

(5)But if any of the return is not recognised in determining the company's profit or loss for any period it is to be treated as recognised using an amortised cost basis of accounting.^F1

(6)Where two or more persons are party to an arrangement which produces a return such as is mentioned in subsection (1)—^F1

(a)for the persons (when taken together), but^F1

(b)not for either (or any) of them individually,^F1

this section applies as if there were a profit arising to such (if any) of them as are companies from a loan relationship of so much of the return as is just and reasonable.

(7)The only amounts which may be brought into account for corporation tax purposes in relation to a return such as is mentioned in subsection (1) in the case of any company are those which are brought into account in accordance with this section (but see section 486C).^F1

(8)In subsection (4) “credits” and “debits” include exchange gains and losses arising as a result of translating at different times the carrying value of the return or the amount by reference to which the return falls to be produced.^F1

(9)In this Chapter “ arrangement ” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable), other than one which constitutes a finance lease (within the meaning given by section 219 of CAA 2001).^F1