Corporation Tax Act 2009 section 521C

Shares accounted for as liabilities

Section 521C sets out the conditions under which a share held by an investing company must be treated as a creditor relationship (i.e. taxed as if it were a loan) rather than as an equity investment.

• The section applies where the issuing company would account for the share as a liability under generally accepted accounting practice and the share produces a return economically equivalent to interest
• The issuing company and the investing company must not be connected companies, and the investing company must hold the share for an unallowable purpose
• A return is "economically equivalent to interest" if it reflects the time value of money, is at a commercially comparable interest rate, and there is no practical likelihood it will cease to be paid (other than due to the issuer's insolvency)
• The section does not apply if the share is an excepted share or is already treated as a creditor relationship under the rules for holdings in OEICs, unit trusts or offshore funds