Company A lends money to company B (new company created solely for this purpose) in exchange for loan note. Loan note transferred to director of company A. Director then redeems the loan note.
There is no doubt that A, as loan creditor, controls B, but are they associated? The only income that B has is interest on the short-term deposit. Does "Jowett" apply?
David Lochhead
Replies (2)
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Is that the right question?
In Jowett (HMIT) v O’Neill & Brennan Construction Ltd a company which had no activity or income other than interest paid on a deposit account was held not to be carrying on any trade or business within the meaning of ICTA 1988, s. 13(4) . On that basis arguably B is not trading , so B would not be associated with A.
But how did the Director acquire the Loan note? .
On what basis was it valued when transferred to the director, and what consideration did he give?
If at an undervalue then expect the Revenue to attck the undervalue either under Sch E rules or under s703.