Corporation Tax Act 2009 section 452

Exchange gains and losses where loan not on arm's length terms

Section 452 deals with how exchange gains and losses are treated when a guarantor company is connected to the creditor company and transfer pricing rules have reduced the interest deduction on a non-arm's length loan.

• Where a company would be treated as having a debtor relationship if a guarantor claim were made, and that company is connected to the creditor company, the claim is automatically assumed to have been made for the purpose of calculating exchange gains and losses.
• This ensures that the guarantor company can pick up exchange-related debits and credits that correspond to the interest deduction reallocated away from the original borrower under transfer pricing rules.
• The total credits for exchange gains recognised by the guarantor (or guarantors) on the debtor relationship cannot exceed the exchange gains that the issuing company is required to leave out of account under section 447.
• Similarly, the total debits for exchange losses recognised by the guarantor (or guarantors) cannot exceed the exchange losses that the issuing company is required to leave out of account under section 447.