Taxation (International and Other Provisions) Act 2010 section 371SQ

Shares accounted for as liabilities: application of section 521C of CTA 2009

Section 371SQ addresses situations where a controlled foreign company (CFC) holds shares that are accounted for as liabilities, and the arrangement is designed to obtain a tax advantage.

• Where a CFC holds shares that would be treated as liabilities under normal corporation tax rules (section 521C of CTA 2009), but for a specific exclusion in that section, this provision can override that exclusion
• The override applies when one of the main purposes of the CFC holding the share is to obtain a tax advantage for any person, by exploiting what would otherwise be a relevant tax advantage in the CFC context
• Where the conditions are met, section 521C of CTA 2009 is assumed to apply to the share, meaning it is treated as a liability rather than equity for tax purposes within the CFC rules
• This provision operates alongside the more general anti-avoidance rule in section 371SO and does not limit the scope of that broader provision