Corporation Tax Act 2009 section 468

Connection between companies to be ignored in some circumstances

Section 468 provides that, in certain circumstances, the normal "connected companies" rules for loan relationships can be switched off for the creditor side, so that the creditor company is treated as if it were unconnected to the debtor company.

• Where a creditor company meets the conditions for being a financial trader (section 469) or an insurance company carrying on basic life assurance and general annuity business (section 471), any connection with the debtor company is ignored for the purposes of the connected-companies loan relationship rules.
• This means the creditor is taxed on the loan relationship using the normal rules rather than the special connected-companies rules — for example, it may be able to recognise impairment losses that would otherwise be restricted.
• However, the disapplication only benefits the creditor side. It does not affect the debtor company's position: the debtor is still treated as connected to the creditor for the purposes of its own tax treatment of the corresponding debtor relationship.
• A company is treated as standing in the position of debtor even if it does so indirectly through a chain of loan relationships or money debts that would be loan relationships if a company were directly the creditor or debtor — in other words, "dog-legged" arrangements through intermediaries are caught.