Corporation Tax Act 2010 section 758

Type 1 finance arrangement defined

Section 758 defines what constitutes a "type 1 finance arrangement" — a structured transaction where a borrower receives an advance, transfers an asset as security, and the lender receives payments linked to that asset, with the accounting treatment reflecting a loan rather than a sale.

• A type 1 finance arrangement requires two conditions to be met: Condition A (the terms of the arrangement) and Condition B (the accounting treatment).
• Condition A requires a borrower to receive an advance from a lender, dispose of an asset (the security) to or for the benefit of the lender or a connected person, and the lender or connected person to be entitled to payments in respect of that security — regardless of whether the entitlement is conditional.
• Condition B requires that, under generally accepted accounting practice, the borrower's accounts record a financial liability for the advance received, and the payments in respect of the security reduce that financial liability (i.e. they are treated as repayments of principal, not interest).
• Where the borrower is a partnership, the accounts of any individual partner may also be considered, and the borrower and lender are specifically treated as not connected with one another for the purposes of this section.