Corporation Tax Act 2009 section 538

Change of partnership shares

Section 538 deals with arrangements where a company invests capital in a partnership and initially accepts a reduced share of profits in exchange for a greater entitlement to the partnership's capital at a later date.

• Where a company joins a partnership and contributes capital, it may initially receive a smaller profit share than its capital contribution would normally justify.
• In return, the company receives a compensating greater entitlement to the capital of the partnership at a later point in time.
• This type of arrangement effectively means the company is deferring its return — accepting less income now in exchange for a larger capital entitlement later.
• The section ensures that such arrangements are properly recognised for corporation tax purposes, preventing the timing mismatch from being used to gain an unintended tax advantage.