CFM70010 - Other tax rules on corporate finance: overview and layout of the guidance

Most of the tax rules relating to corporate finance are to be found in the legislation in Parts 5 to 7 of CTA 2009 which deal with loan relationships and derivative contracts. However, there are a number of rules relating to the taxation of corporate debt which are to be found outside the main body of the loan relationships and derivative contracts legislation.

The rules are those found in:

• other parts of CTA09
• other primary tax legislation
• secondary legislation (Regulations and Orders) made under powers in Parts 5 to 7 CTA09.

Below is a summary of these other rules on corporate debt.

Exemptions from loan relationships

Part 19 of CTA09 sets out exemptions from corporation tax. These exemptions include a number of types of income that would otherwise be taxable under the loan relationships rules. CFM70100 has more details.

Banks and building societies

CFM71000 explains particular rules for banks and building societies, on dormant accounts, unclaimed assets, and on transfers of building society business.

Securitisation companies

There are particular rules governing the taxation of certain types of company involved in securitisations. See CFM72000.

Structured finance

Rules on ‘structured finance arrangements’ were introduced by FA 2006. These rules treat certain arrangements that have the economic effect of lending as if they were loan relationships. See CFM73000.

Stock lending and manufactured payments and repos

Stock lending is a financial arrangement that involves the transfer of securities. It is similar in form to sale and repurchase arrangements (‘repos’) that are a form of secured loan. The loan relationships tax rules that apply to repos are explained in CFM46000.

CFM74000 explains the tax rules on stock lending, and the ‘manufactured payments’ that are a feature of both stock lending and repos.

Deduction of tax

Deduction of tax is required from certain payments of interest and annual payments. CFM75000 sets out these rules.

Changes of accounting practice

Regulations have been made to ensure that certain amounts arising on the transition to International Accounting Standards are brought into account (or deferred, or exempt from being brought into account. See CFM76000.

Transfers of income streams

Legislation to counter the selling of an income stream to try to turn economic income into a capital return was enacted in FA 2009. See CFM77000.

Financial arrangements equivalent to lending, and leasing

Many types of financial arrangement are economically equivalent to lending but take a different legal form - see for example CFM44000 on ‘alternative finance’. Leasing is another way that companies can finance their activities. Guidance on leasing is to be found in the Business Income Manual (BIM61000).

Group mismatch schemes

The group mismatch rules apply where two or more companies are members of a group and are party to a group mismatch scheme, where the scheme is entered into to obtain the change of securing a relevant tax advantage. See CFM77500+.

Transfer Pricing rules

The transfer pricing rules apply to derivative contracts in the same way they apply to any other form of ‘provision’ between associated companies. See CFM56050 for more detail.

Hybrid Mismatch

The Hybrid Mismatch rules are based upon the OECD recommendations in relation to Action 2 of the Base Erosion Profit Shifting (BEPS) project. The rules deal with mismatches involving permanent establishments and hybrid mismatches where a hybrid entity is in a territory with no corporate income tax. The aim of these rules is to neutralise the tax mismatch of either the deduction or the receipt, depending on the circumstances. See CFM85000 for more detail.

Corporate Interest Restriction

The Corporate Interest Restriction rules were introduced by F(No.2)A 2017. The aim of the rules is to restrict a group’s deductions for interest expense and other financing costs to an amount which is commensurate with its activities taxed in the UK, taking account how much the group borrows from third parties. The rules apply to periods starting on or after 1 April 2017. For full details of the rules (including how to deal with periods straddling 1 April 2017) see CFM95100.