Section 931M | Schemes in the nature of loan relationships

(1)This section applies to a dividend or other distribution that does not fall into an exempt class by virtue of section 931E but would, apart from this section, fall into an exempt class otherwise than by virtue of that section.

(2)The distribution does not fall into an exempt class if—

(a)the distribution is made as part of a tax advantage scheme, and

(b)conditions A to C are met.

(3)Condition A is that the distribution constitutes part of a return in relation to an amount that is produced by the scheme for a relevant person, or two or more relevant persons taken together.

(4)Condition B is that the return is economically equivalent to interest.

(5)For this purpose a return produced for a person or persons by a scheme in relation to an amount is “economically equivalent to interest” if (and only if)—

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

(b)it is at a rate reasonably comparable to a commercial rate of interest, and

(c)at the time the scheme is entered into by the person or any of the persons, there is no practical likelihood that it will cease to be produced in accordance with the scheme.

(6)Condition C is that there is a connection between the payer and the recipient for the accounting period of the payer in which the distribution is made.

(7)Section 466 (companies connected for an accounting period) applies for the purposes of subsection (6) as if that subsection were a provision of Part 5 to which that section is applied (but this does not affect the application of section 1316(1) (meaning of connected persons) for the purposes of any other provision of this Part).