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

^[2]>

(1) In this section “loan” includes advance.

^<[2]

^[2]>

(1) In this section—

“loan” includes advance;

“relevant arrangement” means any arrangement, the main purpose, or one of the main purposes, of which is to avoid or reduce a charge to tax under section 438.

^<[2]

(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.

(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.

^[3]>

(3A) Where a participator, or an associate of a participator, in a close company is party to any relevant arrangement, as a result of which a loan is made to a participator, or an associate of a participator, which, apart from this section, does not give rise to a charge under subsection (1) of section 438, that section shall apply as if the loan had been made by the close company to such participator, or such associate of a participator, as the case may be.

^<[3]

(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.

(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.

(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.

(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).

(8) This section shall be construed together with section 438.