Corporation Tax Act 2009 section 358

Exclusion of credits on release of connected companies debts: general

Section 358 prevents a debtor company from recognising a taxable credit when a debt owed to a connected company is released, subject to limited exceptions for deemed releases and certain historic acquisitions of creditor rights.

• When a connected company releases a debt accounted for on an amortised cost basis, the debtor company generally does not bring any credit into account for corporation tax purposes — this mirrors the rule that disallows the creditor's corresponding impairment debits.
• A credit must be recognised only where the release is a "deemed release" (triggered when a connected company acquires creditor rights at an undervalue, or when parties become connected while an impairment adjustment is in place) or where the release involves "relevant rights" acquired before Finance (No. 2) Act 2015 that were previously shielded by the old corporate rescue or debt-for-debt exceptions.
• Where a credit is required on a release of relevant rights, it is calculated as the discount received on the original acquisition of the creditor rights, reduced by any credits already brought into account for that discount in any period by the creditor or any subsequent assignee.
• The exclusion of credits does not affect amounts brought into account for foreign exchange gains or losses on the debt, nor does it prevent recognition of credits or debits arising from the reversal of fair value hedge adjustments to the carrying value of the liability.