Corporation Tax Act 2009 section 506

Profit share agency arrangements

Section 506 defines a type of alternative finance arrangement known as a profit share agency arrangement, where a principal appoints an agent to invest money and they share the resulting profits in a way that, in substance, mirrors interest on a loan.

• A principal appoints an agent (where one or both parties is a financial institution) and provides money for the agent to invest with a view to producing a profit.
• The principal is entitled to a specified share of the profits, while the agent keeps any additional profits above that level and may also receive a fee from the principal.
• The payments the principal receives must, in substance, equate to a return on an investment of money at interest — meaning the arrangement economically resembles a conventional interest-bearing deposit or loan.
• The arrangement is excluded from this treatment if its terms are not on arm's length terms, as provided by section 508.