Corporation Tax Act 2009 section 354

Exclusion of debits for impaired or released connected companies debts

Section 354 sets out the general rule that a company cannot claim tax deductions for impairment losses or debt release debits on loans owed to it by connected companies, subject to limited exceptions.

• Where the creditor and debtor companies are connected and section 349 applies, no impairment loss or release debit on the creditor relationship may be brought into account for corporation tax purposes
• Two exceptions exist to this general rule: where debt is swapped for equity (section 356) and where the creditor company is insolvent (section 357)
• If the carrying value of the loan asset has been adjusted because it was the hedged item in a designated fair value hedge, any reversal of that adjustment can still be recognised as a credit or debit despite the general restriction
• The restriction does not affect debits or credits for foreign exchange gains or losses arising on the debt