Corporation Tax Act 2009 section 361

Acquisition of creditor rights by connected company at undervalue

Section 361 deals with the tax consequences when a company acquires the rights of a creditor in a loan relationship with a connected debtor company, and pays less than the carrying value of that debt.

• Where a company (C) acquires creditor rights in a loan relationship with a debtor company (D), and C and D are connected immediately after the acquisition, special rules apply if C pays less than the pre-acquisition carrying value of the debt.
• The difference between the carrying value of the debt and the amount C actually paid is treated as though C had released that portion of the debt, creating a taxable credit for the debtor company (D).
• This rule does not apply where C acquires the rights from a company to which it is connected during the same period of account, nor where the equity-for-debt exception in section 361C applies; a further exception for corporate rescue situations exists under section 361D.
• The pre-acquisition carrying value is measured as the amount that would appear as the liability in D's accounts immediately before C became a party, ignoring any accrued amounts and any amounts paid or received in advance.