CFM35960 - Loan relationships: connected parties: late interest: APs beginning on or after 1 April 2009
Changes to the late interest rule after 1 April 2009
Schedule 20 Finance Act 2009 amended the late interest rule for accounting periods beginning on or after 1 April 2009. It inserted new conditions at CTA09/S374(1A), CTA09/S375(4A), and CTA09/S377(2), applying respectively to cases where the creditor is a 바카라 사이트˜connected company바카라 사이트™ (CFM35860), a close company participator (CFM35870) or a 바카라 사이트˜major interest바카라 사이트™ company (CFM35920).
In each case the new condition is that the late interest rule will only apply where the creditor is a company that is 바카라 사이트˜resident바카라 사이트™ in a 바카라 사이트˜non-qualifying territory바카라 사이트™.
바카라 사이트˜Non-qualifying territory바카라 사이트™ takes its meaning from TIOPA2010/S173, and is explained at INTM412090. It means any territory that is not a 바카라 사이트˜qualifying territory바카라 사이트™, which in turns means a territory with which the UK has a double taxation treaty that contains a non-discrimination article. The list of such territories at INTM412090 includes all EU countries and the majority of other normal tax jurisdictions. It excludes tax havens and similar jurisdictions. If a territory is not on this list, HMRC바카라 사이트™s view is that a creditor company is located in a 바카라 사이트˜non-qualifying바카라 사이트™ territory for the purposes of the late interest rule.
Resident is defined as 바카라 사이트˜liable to tax by reason of domicile, residence, or place of management, or effectively managed in a non-qualifying territory other than one in which companies are liable to tax by reason of domicile, residence or place of management바카라 사이트™.
Some territories do not levy tax by reason of domicile, residence or place of management, and a company effectively managed in such a territory would not be 바카라 사이트˜resident for tax purposes바카라 사이트™ in such a territory. The words 바카라 사이트˜effectively managed바카라 사이트™ are broadly equivalent to the concept of 바카라 사이트˜place of management바카라 사이트™ used in Double Taxation Treaties. A company will therefore be caught by the late interest rule even if its creditor is managed in a jurisdiction that does not levy an income tax or corporation tax on profits, or one that only taxes local-source income, and would not otherwise be 바카라 사이트˜resident바카라 사이트™ there for tax purposes.
The changes made by FA09 mean that in the majority of cases where the creditor is a company, unless that company is located in a tax haven, normal loan relationships principles will apply, and interest will be deductible as it accrues in the accounts, not when it is paid. The changes have no effect where the creditor is an individual or a pension scheme.
Equivalent changes were made to the similar rule that applies to deeply discounted securities (CFM37200).
The Budget 2009 announcement on the amendment to the rule stated that if the changes to these provisions were abused, anti-avoidance measures would be introduced in a future Finance Bill. HMRC staff should report examples of avoidance to CTIAA (Financial Products Team).