Corporation Tax Act 2009 section 352B

Eliminating tax mismatch for loan relationships with qualifying link

Section 352B eliminates a tax mismatch that can arise when a company borrows externally on fair value terms and on-lends the proceeds to connected companies, by requiring both sides to be taxed on the same amortised cost basis.

• Where a company has an external borrowing accounted for at fair value and uses the funds wholly or mainly to lend to connected companies, the two sides have a "qualifying link"
• The connected companies loans are already taxed on an amortised cost basis; this section forces the external borrowing to be taxed on the same amortised cost basis, removing the mismatch
• A "qualifying link" exists when the money received under the external loan is wholly or mainly on-lent under one or more connected companies loan relationships that fall within section 349
• If the company also hedges the external borrowing with a derivative contract, it is assumed for tax purposes that the hedge has been designated as a fair value hedge of that loan relationship