Taxation (International and Other Provisions) Act 2010 section 197

Qualifying conditions for purposes of section 198

Section 197 sets out the six qualifying conditions (A to F) that must all be met before section 198 can apply to treat balancing payments between a guarantor company and an issuing company as having no tax charge or relief.

• The issuing company must have liabilities under a security (or equivalent borrowing) that are guaranteed by another company, and the transfer pricing rules must have reduced the issuing company's tax deductions for interest or other amounts payable on that security.
• The reduction in deductible amounts must have arisen specifically because of the guaranteed debt provisions in section 153, which deem an arm's length provision where a security is issued and a guarantee is given.
• One or more balancing payments must be made by the guarantor company to the issuing company, and the sole or main reason for making those payments must be that the transfer pricing adjustment applies because of section 153, or that the guarantor attribution rules in sections 192 to 194 apply.
• The terms "security" and "guarantee" are defined broadly: "security" includes unsecured debt and even informal lending without a formal instrument, while "guarantee" covers sureties and any informal arrangement or connection giving the lender a reasonable expectation of being paid by another company if the issuing company defaults.