CFM45090 - Deemed loan relationships: shares with guaranteed returns: outstanding third party obligations: comparison with commercial rate of interest
Interest-like investment: substantial deviation from commercial rate of interest
This guidance applies to companies that hold shares up to 21 April 2009
The rule provides that an investment is 바카라 사이트˜interest-like바카라 사이트™ where the fair value is likely to increase at a rate which represents a return on an investment of money at a commercial rate of interest, and is unlikely to deviate substantially from that rate of increase. In turn, the definition of commercial rate of interest allows latitude by referring to a rate which is 바카라 사이트˜reasonably comparable바카라 사이트™.
These two provisions are designed to prevent companies getting round the rules by slightly tweaking a likely rate of increase in the fair value of a share, and should be operated as explained by the following example.
Company A invests in shares in an SPV which are intended to increase in value using outstanding third party obligations. The arrangement is to last a year and it is agreed that the correct comparative deposit rate between the parties would be 5%. The 바카라 사이트˜reasonably comparable바카라 사이트™ test prevents the parties escaping from FA96/S91A by using a slightly different rate such as 5.1% or 4.9%.
It would also be possible for the rate of increase in fair value to be varied during the term of the arrangement but in such a way that that the overall increase over the term was 5%. For instance, it would be possible to build in a rate of 5.5% for the first 6 months and 4.5% for the second 6 months. The 바카라 사이트˜unlikely to deviate substantially바카라 사이트™ rule prevents such manipulation from taking the shares outside S524.
From 12 March 2008, the special tax definition of 바카라 사이트˜commercial rate of interest바카라 사이트™ is repealed. In practice, this will not result in any change in HMRC바카라 사이트™s approach to determining whether a rate of interest is 바카라 사이트˜commercial바카라 사이트™.