Corporation Tax Act 2009 section 523

Application of Part 5 to certain shares as rights under creditor relationship

Section 523 provides that certain shares can be treated as loan relationships for corporation tax purposes, so that distributions received from those shares are taxed as loan relationship credits or debits rather than as dividend income.

• Where either section 524 or section 526 applies, rights held in certain shares are treated as if they were rights under a creditor loan relationship.
• This means that distributions and other returns from such shares are brought into account as credits or debits under the loan relationships rules in Part 5 of the Act.
• The effect is to move these share-based returns out of the normal dividend/distribution tax regime and into the loan relationships regime, which may result in different tax treatment.
• This provision originated from sections 91A and 91B of the Finance Act 1996 and targets shares that, in economic substance, behave more like debt instruments than equity.