Section 438A Extension of section 438 to loans by companies controlled by close companies
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Amendments
Section 438A inserted by Finance Act 2003 section 45(1)(b) as respects the making of a loan, the advance of any money, the incurring of any debt, or the assignment of any debt, on or after 6 February 2003.
(1) In this section "loan" includes advance.
(2) Subject to subsection (5), where a company which is controlled by a close company makes a loan which, apart from this section, does not give rise to a charge under subsection (1) of section 438, that section applies as if the loan had been made by the close company.
Is a loan made by a company controlled by a close company caught by the close company loans to participators rules?
(1)-(2) This section counteracts potential tax avoidance following the extension of section 438 (income tax charge on the grossed up amount of a loan to a participator or a participator's associate) to companies that are tax resident outside the EU....
(3) Subject to subsection (5), where a company which is not controlled by a close company makes a loan which, apart from this section, does not give rise to a charge under subsection (1) of section 438 and a close company subsequently acquires control of it, that section applies as if the loan had been made by the close company immediately after the time when it acquired control.
If a loan is made from one company to another, and a close company subsequently acquires control of it, is it considered a loan under the close company rules?
(3) The income tax charge on the grossed up amount of the loan (section 438) also applies where the loan is made by a company which, although not a subsidiary of the close company, subsequently becomes a subsidiary.
(4) Where 2 or more close companies together control the company that makes or has made the loan, subsections (2) and (3) apply-
(a) as if each of them controlled that company, and
(b) as if the loan had been made by each of those close companies,
but the loan shall be apportioned between those close companies in such proportion as may be appropriate having regard to the nature and amount of their respective interests in the company that makes or has made the loan.
Is a loan made by a company controlled by more than one close company subject to income tax on the grosssed up amount of the loan?
(4) The income tax charge on the grossed up amount of the loan (section 438) also applies where the loan is made by a company which, although not controlled by the close company, is controlled by it together with one or more other close companies....
(5) Subsections (2) and (3) do not apply if it is shown that no person has made any arrangements (otherwise than in the ordinary course of a business carried on by that person) as a result of which there is a connection-
(a) between the making of the loan and the acquisition of control, or
(b) between the making of the loan and the provision by the close company of funds for the company making the loan,
and the close company shall be regarded as providing funds for the company making the loan if it directly or indirectly makes any payment or transfers any property to, or releases or satisfies (in whole or in part) a liability of, the company making the loan.
When is income tax not payable on the grossed up amount of a loan by a subsidiary of a close company?
(5) The application of the income tax charge on the grossed up amount of the loan by a subsidiary of the close company does not apply if it is shown that the making of the loan is not connected with:...
(6) Where, by virtue of this section, section 438 applies as if a loan made by one company had been made by another company, any question under that section whether-
(a) the company making the loan did so otherwise than in the ordinary course of a business carried on by it which includes the lending of money,
(b) the loan or any part of it has been repaid to the company,
(c) the company has released or written off the whole or part of the debt in respect of the loan,
shall be determined by reference to the company that makes the loan.
What matters need to be considered when identifying the amount of the loan subject to the conditions on loans by subsidiary companies to close companies?
(6) Where this section applies the income tax charge to the grossed up amount of a loan made by a subsidiary of the close company, the following matters are to be determined by reference to the lending company:...
(7) References to a company making a loan include references to cases in which the company is, or if it were a close company would be, regarded as making a loan by virtue of section 438(2).
