CFM42060 - Deemed loan relationships: disguised interest: returns 바카라 사이트˜economically equivalent to interest바카라 사이트™

Returns 바카라 사이트˜economically equivalent to interest바카라 사이트™

The main feature of the disguised interest rules is to be able to identify interest-like returns or, as the legislation puts it 바카라 사이트˜a return in relation to any amount which is economically equivalent to interest on that amount.바카라 사이트™ CTA09/S486A(2) sets out a definition of 바카라 사이트˜economically equivalent to interest바카라 사이트™ that runs through three conditions.

Basic definition of interest (subsection (a))

The return must fit within a basic definition of interest. This basic definition of the meaning of interest is drawn from a number of the indicia commonly cited in cases on the meaning of interest (e.g. Euro Hotel (Belgravia) Limited 51TC293 and Bennett v Ogston 15TC374) (CFM33030). This captures the familiar concepts that the return must be:

  • by reference to an amount of money. This means HMRC will be looking for an investment of some sort (or an entitlement to payment of something akin to a debt) in order for the legislation to apply; and
  • calculated by reference to the time value of money.

Commercial rate of interest (subsection (b))

The return must in all the circumstances be comparable to a commercial rate of interest. There are a couple of features to this condition that are worth noting.

The return must only be 바카라 사이트˜comparable바카라 사이트™. Consequently, the return does not have to be exactly the same as a commercial rate of interest. It therefore provides a range of interest rates within which a return could be 바카라 사이트˜comparable바카라 사이트™ to a commercial rate of interest.

In deciding whether an interest rate is comparable to a commercial rate of interest, you should assume that all factors are taken into account. A commercial rate of interest would therefore take into account the identity and creditworthiness of the counterparty. It could also include such features as the relationship between the two parties, the duration of the arrangement and the currency of the transaction(s).

Practical likelihood of the return (subsection (c))

The interest-like return must be predictable. There must be 바카라 사이트˜no practical likelihood바카라 사이트™ , when viewed at the 바카라 사이트˜relevant time바카라 사이트™ that the return will not be produced in accordance with the arrangement.

It is therefore not enough that an interest-like return results from the arrangements. If the return is the product of chance or could not have been reasonably anticipated at the outset of the arrangement, then it cannot be a return 바카라 사이트˜economically equivalent to interest바카라 사이트™.

In assessing whether there was 바카라 사이트˜no practical likelihood바카라 사이트™ that the return will not be produced in accordance with the arrangement you should ignore contingencies such as default outside of the control of the parties. This would include ignoring the possibility of default.

The 바카라 사이트˜relevant time바카라 사이트™ (S486B(3))

The 바카라 사이트˜relevant time바카라 사이트™ is defined for the purposes of S486B(2)(c), as being the later of the time when the company becomes party to the arrangements or the time when the return begins to be produced. It must therefore be clear at the outset that the return will be produced. Thus, although there is no express requirement for the arrangement to be 바카라 사이트˜designed바카라 사이트™ to produce the return, the return must be initially predictable.