Corporation Tax Act 2009 section 359

Exclusion of credits on release of connected companies debts during creditor's insolvency

Section 359 prevents a debtor company from being taxed on a credit arising when a connected company creditor releases a debt, where the creditor's insolvency breaks the connected company relationship.

• When a creditor company enters insolvency (meeting conditions A to E in section 357), a new accounting period begins, which can break the connected company relationship between creditor and debtor
• If the debtor relationship was a connected companies relationship immediately before the insolvency condition was first met, but ceased to be one immediately afterwards, the debtor company does not have to recognise a taxable credit on the release of the debt
• This relief applies only where the debtor relationship is accounted for on an amortised cost basis in the accounting period in which the release takes place
• The exclusion does not prevent a credit being recognised in respect of the reversal of any fair value hedge adjustment that was previously made to the carrying value of the liability