Taxes Consolidation Act 1997 section 438A

Extension of section 438 to loans by companies controlled by close companies

Section 438A is an anti-avoidance provision that extends the close company loan charge under section 438 to loans made by companies controlled by a close company, or that subsequently come under its control, where such loans would not otherwise give rise to a charge under section 438.

• Where a company controlled by a close company makes a loan that would not itself attract a charge under section 438, that section applies as if the close company had made the loan directly.
• The charge also applies where the loan pre-dates the close company's acquisition of control, and where a loan arises from a "relevant arrangement" — one whose main purpose, or one of whose main purposes, is to avoid or reduce a charge under section 438.
• Where two or more close companies jointly control the lending company, each is treated as if it had made the loan, but the loan is apportioned between them in proportion to their respective interests in the lending company.
• The extended charge does not apply where it can be shown that no arrangements were made connecting the loan either to the acquisition of control or to the close company providing funds to the lending company.