Section 161 | Indirect participation: involvement in financing arrangements

(1)At any time this subsection applies, a person (“P”), with a qualifying interest in a body corporate or firm (“A”) is to be regarded as indirectly participating in the management, control or capital of A for the purposes of applying any of—

(a)section 148(2) or (3) (participation condition),

(b)section 175 (application of section 174 where guarantee disallowed), or

(c)section 219(2) (in Part 5),

in relation to provision comprising financing arrangements for A to which P and one or more other persons with a qualifying interest in A are party.

(2)Subsection (1) applies at any time if—

(a)one or more of those other persons act together (within the meaning given by subsection (4)) with P in relation to A, or have acted together in relation to A within the previous 6 months, and

(b)if all of the rights and powers of P and each of the persons mentioned in paragraph (a) were held by one person (“H”), that person would be taken to have control of A.

(3)In determining whether H would be taken to have control of A, the rights and powers of any person (and not just H) are to be taken to include those that would be attributed to that person by section 159(2) were it being decided under section 159(2) whether that person is indirectly participating in the management, control or capital of A.

(4)A person (“Q”) with a qualifying interest in another person (“B”), and another person (“U”) with such an interest, are to be regarded as acting together in relation to B if at any time while they both hold such an interest—

(a)Q and U are connected (within the meaning of section 163),

(b)for the purposes of influencing the conduct of B’s affairs—

(i)Q is able to secure that U acts in accordance with Q's wishes,

(ii)U can reasonably be expected to act, or typically acts, in accordance with Q's wishes,

(iii)U is able to secure that Q acts in accordance with U's wishes, or

(iv)Q can reasonably be expected to act, or typically acts, in accordance with U's wishes, or

(c)Q and U are party to any financing arrangements for B to which Q and U are party that—

(i)it is reasonable to suppose is designed to affect the value of any of U's or Q’s rights or interests in relation to B, or

(ii)relates to the exercise of any of U's or Q’s rights in relation to B.

(5)But for the purposes of subsection (4), ignore any rights or powers of Q that only arise as a result of loan made by Q and that are conferred in relation to property of U by the terms of any security relating to the loan.

(6)A person (“R”) has a qualifying interest in a company (“C”) if it is reasonable to suppose that—

(a)R possesses, or is entitled to acquire, any amount of the share capital or issued share capital of C,

(b)R possesses, or is entitled to acquire, any amount of the voting power in C, or

(c)if the whole of C's share capital were disposed of, R would receive (directly or indirectly and whether at the time of disposal or later) any amount of the proceeds of the disposal, other than as a result only of the terms of a normal commercial loan under which R is the creditor of C.

(7)A person (“R”) has an qualifying interest in a firm (“F”) if it is reasonable to suppose that, other than as a result only of the terms of a normal commercial loan under which R is the creditor of F—

(a)if the whole of the income of the firm were distributed, R would receive (directly or indirectly and whether at the time of the distribution or later) any amount of the distributed amount, or

(b)in the event of a winding-up of the firm or in any other circumstances, R would receive (directly or indirectly and whether or not at the time of the winding-up or other circumstances or later) any amount of F's assets which would then be available for distribution.

(8)In this section—

“arrangements” includes any agreement, understanding, scheme, transaction or series of transactions, whether or not legally enforceable;

“financing arrangements” means arrangements made for providing or guaranteeing, or otherwise in connection with, any debt, capital or other form of finance;

“normal commercial loan” means a loan which is a normal commercial loan for the purposes of section 158(1)(b) or 159(4)(b) of CTA 2010.