Taxation (International and Other Provisions) Act 2010 section 201

Pre-conditions for making election under section 202

Section 201 sets out the five conditions (A to E) that must all be met before two connected companies can make an election under section 202 to pay tax rather than make balancing payments in a guarantee scenario.

• Both affected persons must be companies, and only one of them (the "advantaged person") must gain a UK tax advantage from the arrangement, while the other (the "disadvantaged person") must be within the charge to UK income tax or corporation tax on profits from the relevant activities.
• The arrangement must involve a series of transactions that include the issuing of a security by one company and the provision of a guarantee by the other company.
• The term "security" is broadly defined to include securities that do not create a charge on assets, and interest or other consideration paid on money advanced without a formal security is treated as if a security had been issued.
• The term "guarantee" is broadly defined to include sureties and any formal or informal relationship, arrangement, or understanding under which the lender has a reasonable expectation of being paid by another company if the issuing company defaults.