CFM42140 - Deemed loan relationships: disguised interest: excluded shares
CTA09/S486E
Excluded shares
The disguised interest rules will not apply where the arrangement involves an investment in shares and the share is 바카라 사이트˜excluded바카라 사이트™ by CTA09/S486E.
The intention behind the excluded share rules is that it will prevent arrangements being caught by the disguised interest rules where the interest-like return arises to a company purely as a result of an increase in the value of any share that it holds in a group company.
Without this rule, it would be possible for a single interest-like return to be taxed repeatedly within a chain of companies in the same group.
Example
Company A holds 100% of the share capital in Company B. Company B holds 100% of the share capital in Company C and has no other assets. All companies are UK resident.
In the year ended 31 December 2009 Company C has no assets other than a £100m deposit with a bank at an interest rate of 5% p.a.
Company C receives £5m interest in the year ended 31 December 2009 and that income is relieved by non-trading debits on loan relationships brought forward. The fair value of the shares held by Company B in Company C will also increase by £5m as compared to a previous fair value of £5m. This would be a 바카라 사이트˜return economically equivalent to interest바카라 사이트™ and potentially could fall within the disguised interest rules. Similarly, the increase in the fair value of Company B바카라 사이트™s shareholding in Company C will cause a similar increase in the fair value of Company A바카라 사이트™s shareholding in Company B. Consequently, Company A will have a return on its shares in Company B that would potentially be within the disguised interest rules.
The impact of this chain is that both Company A and Company B could potentially be taxed on a return that has already been brought into account by Company C.
The 바카라 사이트˜excluded share바카라 사이트™ rules will prevent the same economic gain from being taxed repeatedly within group situations. In the above example it would mean that Company B바카라 사이트™s holding would be excluded if the return Company B obtains is an increase in value of the Company C shares. Company A바카라 사이트™s holding is excluded if its return is an increase in the value of the Company B shares.
It achieves this by ensuring that:
- investments in shares in connected companies are automatically 바카라 사이트˜excluded shares바카라 사이트™;
- investments in shares in joint venture companies are automatically 바카라 사이트˜excluded shares바카라 사이트™;
- investments in shares in a 바카라 사이트˜relevant CFC바카라 사이트™ are automatically 바카라 사이트˜excluded shares바카라 사이트™