Section 153B | Election for deemed guarantee

(1)This section applies where the actual provision includes provision for the borrowing of an amount.

(2)A UK resident company (“the deemed guarantor”) with whom the borrower has a qualifying participatory relationship may elect to be treated, in relation to that borrowing—

(a)for the purposes of this Part (as it applies to the deemed guarantor, the borrower and any other person), and

(b)while the deemed guarantor is UK resident and has that relationship,

as having provided a guarantee in respect of so much of the borrowing as is excessive.

(3)Borrowing is excessive to the extent that it—

(a)would not have been lent between independent enterprises but for a guarantee, and

(b)was not the subject of such a guarantee.

(4)The election—

(a)applies at all times when the condition in subsection (2)(b) is met, from the beginning of the day on which the first chargeable period of the borrower for which the election is made commences, and

(b)is irrevocable (so continues indefinitely).

(5)The election—

(a)must specify the first chargeable period of the borrower for which the election is made,

(b)may not be made more than 4 years after the end of that period.

(6)Where the borrower is the subject of a discovery assessment in relation to a chargeable period of the borrower, the deemed guarantor may make an election for that period to be the first chargeable period of the borrower for which the election is made (despite subsection (5)(b)) at any time within the period of one year beginning with the making of that discovery assessment.

(7)Nothing in this section is to be taken as permitting the amendment of a return, or the making of any claim or election, in consequence of an election made under this section after the time for which that amendment, claim or other election could otherwise be made.

(8)Where the lender makes a claim under section 174 or a guarantor makes a claim under section 192 in relation to the provision for the borrowing before the election made under this section, the election only applies to so much of the excessive borrowing as is not taken account of in the calculation of that person’s profits and losses as a result of the claim.

(9)For the purposes of this section—

(a)a participatory relationship is “qualifying” if the participatory relationship does not arise only as a result of any of sections 148A (participation condition treated as met following transfer pricing notice) or 159 to 161 (indirect participation);

(b)“discovery assessment” means—

(i)an assessment under section 29(1) of TMA 1970, or

(ii)a discovery assessment or discovery determination under Schedule 18 to FA 1998 (company tax returns).

(10)See also Chapter 5 for provision about claims by a guarantor (which includes a person making an election under subsection (2)).