Corporation Tax Act 2009 section 362

Parties becoming connected where creditor's rights subject to impairment adjustment

Section 362 deals with the tax consequences when a creditor company and a debtor company become connected, and the debt has suffered a reduction in value that has not yet been fully reflected in the creditor's books.

• When a creditor company (C) becomes connected with a debtor company (D) under a loan relationship, C is treated as having released its rights under that loan at the point of connection
• The amount deemed released is the excess (if any) of the carrying value of the liability in D's accounts over the carrying value of the corresponding asset in C's accounts, both measured immediately before the companies become connected
• C's pre-connection carrying value is based either on amortised cost at the end of the prior accounting period (if C held the loan then) or on the consideration C paid to acquire the loan, in each case excluding accrued amounts and amounts paid or received in advance
• These deemed release provisions are subject to a corporate rescue exception under section 362A, which may disapply them where the debt is released shortly after the connection arises