Corporation Tax Act 2009 section 133L

Associated companies

Section 133L defines when two companies are considered "associated" for the purposes of the rules restricting tax deductions for compensation payments (sections 133A and 133C). This matters because the compensation payment restrictions can apply not only to payments made by the company itself but also to payments involving associated companies.

• Two companies are associated if their financial results are, or should be, included in the same group accounts (the "consolidation condition"), or if there is a statutory "connection" between them for the relevant accounting period
• Association also exists where one company holds a "major interest" in the other — broadly, a 40% or greater stake as defined elsewhere in the Corporation Tax Act 2009
• The relationship can be indirect: if company A meets the consolidation condition with a third company, or is connected with a third company, and that third company holds a major interest in company B, then A and B are treated as associated
• The consolidation condition is met where the two companies' results are required to be included in group accounts (such as those prepared under the Companies Act 2006 or equivalent overseas legislation), would be so required but for an exemption, or are in fact included in such accounts