Paragraph 4 Guarantees

Omit section 152.

Omit section 153.

Before section 154 insert—

“Certain guarantees not capable of being arm’s length

153A

Where—

(a)

the actual provision includes provision for the borrowing of an amount,

(b)

the amount would not have been lent between independent enterprises but for a guarantee, and

(c)

such a guarantee was provided by a person with whom the borrower has a participatory relationship,

provision for the guarantee (to the extent it relates to the borrowing of that amount) is never to be regarded as arm’s length provision for the purposes of this Part.”

After section 153A (as inserted by sub-paragraph (3)) insert—

“Election for deemed guarantee

153B

(1)

This section applies where the actual provision includes provision for the borrowing of an amount.

(2)

A UK resident company (“the deemed guarantor”) with whom the borrower has a qualifying participatory relationship may elect to be treated, in relation to that borrowing—

(a)

for the purposes of this Part (as it applies to the deemed guarantor, the borrower and any other person), and

(b)

while the deemed guarantor is UK resident and has that relationship,

as having provided a guarantee in respect of so much of the borrowing as is excessive.

(3)

Borrowing is excessive to the extent that it—

(a)

would not have been lent between independent enterprises but for a guarantee, and

(b)

was not the subject of such a guarantee.

(4)

The election—

(a)

applies at all times when the condition in subsection (2)(b) is met, from the beginning of the day on which the first chargeable period of the borrower for which the election is made commences, and

(b)

is irrevocable (so continues indefinitely).

(5)

The election—

(a)

must specify the first chargeable period of the borrower for which the election is made,

(b)

may not be made more than 4 years after the end of that period.

(6)

Where the borrower is the subject of a discovery assessment in relation to a chargeable period of the borrower, the deemed guarantor may make an election for that period to be the first chargeable period of the borrower for which the election is made (despite subsection (5)(b)) at any time within the period of one year beginning with the making of that discovery assessment.

(7)

Nothing in this section is to be taken as permitting the amendment of a return, or the making of any claim or election, in consequence of an election made under this section after the time for which that amendment, claim or other election could otherwise be made.

(8)

Where the lender makes a claim under section 174 or a guarantor makes a claim under section 192 in relation to the provision for the borrowing before the election made under this section, the election only applies to so much of the excessive borrowing as is not taken account of in the calculation of that person’s profits and losses as a result of the claim.

(9)

For the purposes of this section—

(a)

a participatory relationship is “qualifying” if the participatory relationship does not arise only as a result of any of sections 148A (participation condition treated as met following transfer pricing notice) or 159 to 161 (indirect participation);

(b)

“discovery assessment” means—

(i)

an assessment under section 29(1) of TMA 1970, or

(ii)

a discovery assessment or discovery determination under Schedule 18 to FA 1998 (company tax returns).

(10)

See also Chapter 5 for provision about claims by a guarantor (which includes a person making an election under subsection (2)).”

In section 154 (interpretation of sections 152 and 153)—

In section 164(1)(a) (Part to be interpreted in accordance with OECD principles), after “148A” (as inserted by paragraph 2(3)) insert “, 154(5B)”.

In section 174 (claim by the affected person who is not potentially advantaged), in subsection (3), for “claim not allowed in some cases where actual provision relates to a security issued by one of the affected persons” substitute “application of section 174 where guarantee disallowed”.

For section 175 substitute—

“Application of section 174 where guarantee disallowed

175

(1)

Subsection (2) applies where—

(a)

the actual provision includes provision for the borrowing of an amount,

(b)

that amount would not have been lent between independent enterprises but for a guarantee,

(c)

such a guarantee was provided by a person with whom the borrower has a participatory relationship, and

(d)

the participation condition, in relation to the actual provision for the borrowing—

(i)

would not be satisfied but for section 161 (indirect participation), or

(ii)

is satisfied as a result of a notice given under section 148A(3), and the Commissioners for His Majesty's Revenue and Customs consider that the case is analogous to a case that would meet the participation condition only as a result of section 161.

(2)

For the purposes of section 174(2), the amount is to be treated as if it had been lent to the guarantor on equivalent terms to the terms on which it was lent to the borrower.

(3)

Section 154 (interpretation of section 153A and 153B) applies for the purposes of this section as it applies for the purposes of sections 153A and 153B.”

In consequence of the amendment made by sub-paragraph (8)—