Corporation Tax Act 2010 section 162

Meaning of "normal commercial loan"

Section 162 defines what counts as a "normal commercial loan" for the purposes of identifying equity holders and determining how profits or assets are available for distribution within the group relief rules.

• A normal commercial loan must involve new consideration and satisfy four conditions relating to conversion rights, share acquisition rights, interest terms, and repayment amounts.
• The loan must not be convertible into shares or securities (with limited exceptions for certain quoted company shares and specific types of shares and securities).
• Interest on the loan must not depend on the company's business results or asset values and must not exceed a reasonable commercial return.
• On repayment, the creditor must receive no more than the original amount lent, unless the repayment amount is comparable to what would be repaid under listed securities on a recognised stock exchange.