Corporation Tax Act 2010 section 164A

Loan forming part of tier two capital

Section 164A ensures that financial instruments forming part of a bank's (or its parent undertaking's) Tier Two capital resources are treated as normal commercial loans for corporation tax purposes, subject to an anti-avoidance rule.

• Financial instruments that qualify as Tier Two capital for a bank or the parent undertaking of a bank are to be treated as ordinary commercial loans for corporation tax purposes.
• This treatment means that interest payments on these instruments should generally be deductible for the issuing company, and taxable for the recipient, in the same way as interest on a standard loan.
• The favourable treatment as a normal commercial loan does not apply where a main purpose, or one of the main purposes, of the loan arrangement is to obtain a tax advantage.
• This provision was introduced by The Taxation of Regulatory Capital Securities Regulations 2013 to align the tax treatment of regulatory capital instruments with their commercial substance.