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Chapter CFM96330

Document Cited in Related
Vincent
Published date16 April 2016
Record NumberCFM96330
CourtHM Revenue & Customs
IssuerHM Revenue & Customs
TIOPA10/S471

Some companies are wholly owned by relevant public bodies, meaning the public body is a related party of its subsidiary. Likewise there can be occasions where a public body has a significant stake in a company. Often such a company is significantly constrained in who it is permitted to borrow from. In such cases the loans made by the public body would, except for s471, fall into the related party provisions.

There is a specific rule which operates to disapply the related party provisions in these sorts of situations.

Where a relevant public body (B) lends money to a related party (P), B and P are not treated as related parties in respect of the loan, provided that the realising of a profit is only incidental to the making of the loan.

Example: Public body providing a loan to a subsidiary which is carrying out the objectives of the public body.

A local authority has a subsidiary which provides rental accommodation to people within the local authority area (social housing). The local authority charges an arms-length commercial margin to its subsidiary on the interest on a loan it makes to its subsidiary.

Whether or not the profit on the loan is incidental to...

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