What is the purpose of section 770 of the Corporation Tax Act 2010?

Section 770 acts as a signpost to the exceptions from the finance arrangement rules found in sections 771 to 773. These exceptions disapply the deemed loan relationship treatment that would otherwise recharacterise certain arrangements under the finance arrangement codes covering type 1, type 2 and type 3 arrangements for United Kingdom corporation tax purposes.

What are the three finance arrangement codes defined in section 770?

Section 770 defines three separate finance arrangement codes. The first code covers type 1 arrangements in sections 758 to 762. The second code covers type 2 arrangements in sections 763 to 766. The third code covers type 3 arrangements in sections 767 to 769. Each code can be excepted independently from the others.

How do the exceptions in sections 771 to 773 work in practice?

When considering whether a finance arrangement should be recharacterised as a deemed loan relationship, you first identify whether it is a type 1, 2 or 3 arrangement. You then check sections 771 to 773 for applicable exceptions. If an exception applies, the deemed loan relationship treatment is switched off and the arrangement is taxed on its actual legal form.

Can additional exceptions to the finance arrangement codes be created beyond those in the Act?

Yes. Section 773 provides a power to create further exceptions to the finance arrangement codes by statutory instrument. This means the list of exceptions available under United Kingdom corporation tax law may be expanded over time without the need for primary legislation, allowing the rules to adapt to new commercial arrangements.

Corporation Tax Act 2010 section 770

Exceptions: preliminary

Section 770 introduces the exceptions that may disapply the finance arrangement rules covering type 1, type 2 and type 3 arrangements.

Sections 771 to 773 set out circumstances in which the finance arrangement codes do not apply.
Type 1 arrangements (sections 758 to 762) form one finance arrangement code.
Type 2 arrangements (sections 763 to 766) form a second finance arrangement code.
Type 3 arrangements (sections 767 to 769) form a third finance arrangement code.

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