Corporation Tax Act 2009 section 349

Application of amortised cost basis to connected companies relationships

Section 349 requires that where two connected companies have a loan relationship between them, both parties must use the amortised cost basis of accounting rather than fair value when calculating their taxable credits and debits, with a special rule for hedging arrangements.

• Where a loan relationship exists between connected companies, both parties must use the amortised cost basis of accounting to determine their taxable credits and debits for each accounting period.
• This prevents one company from artificially depressing the value of a loan and ensures that debits in one company are matched by corresponding credits in the other.
• Where a company has a hedging relationship between a relevant contract (the hedging instrument) and the asset or liability representing the loan relationship, and the loan relationship is accounted for at fair value, a special assumption applies.
• In such hedging cases, when applying the amortised cost basis the company must assume that the hedging instrument has, where possible, been designated for accounting purposes as a fair value hedge of the loan relationship.