Corporation Tax Act 2009 section 511

Purchase and resale arrangements

Section 511 defines how to calculate the "alternative finance return" element within purchase and resale arrangements, whether the second purchase price is paid as a lump sum or in instalments.

• The alternative finance return is the portion of the second purchase price that effectively represents a financing charge, equivalent to interest on a conventional loan.
• Where the second purchase price is paid in full on a single date, the alternative finance return is simply the difference between the second purchase price and the first purchase price.
• Where the second purchase price is paid in instalments, each instalment contains an element of alternative finance return, calculated as though it were an interest component of a repayment on an arm's length loan.
• The notional loan is assumed to equal the first purchase price, with total interest equal to the excess of the second purchase price over the first purchase price, and is accounted for under generally accepted accounting practice.