Corporation Tax Act 2009 section 524

Shares subject to outstanding third party obligations

Section 524 identifies the first type of shares that are treated as creditor relationships under section 523: shares whose value increases in a way that resembles an investment return, because a third party has an obligation that supports or underpins that increase.

• This section targets shares where a third party obligation causes the share value to rise in a manner similar to an investment return, such as interest on a loan.
• The third party obligation must be outstanding at the time the shares are issued, meaning there is already an arrangement in place that will drive the value increase.
• These shares are treated as creditor relationships rather than equity investments, which changes how the company accounts for them for corporation tax purposes.
• This provision is part of a broader anti-avoidance framework designed to ensure that instruments which are economically equivalent to debt are taxed as debt, regardless of their legal form as shares.

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