Corporation Tax Act 2009 section 361C

The equity-for-debt exception

Section 361C provides an exception that prevents a taxable loan relationships credit from arising when a connected company acquires a debt at undervalue, provided the transaction meets specific conditions regarding arm's length dealing and the form of consideration.

• This exception applies where a connected company acquires a debt owed by a connected debtor company to a third party, and the acquisition meets two conditions
• The first condition is that the acquisition must be an arm's length transaction
• The second condition is that the only consideration given by the acquiring company is ordinary shares in itself, ordinary shares in a connected company, or an entitlement to such shares
• Transitional rules applied for acquisitions agreed before 14 October 2009, with completion required before 31 January 2010