Chapter 5: Position of guarantor of affected person’s liabilities under a security issued by the person
Overview
389.This Chapter provides for the guarantor company to obtain a deduction for interest which is disallowed on the advantaged company under section 147 (basic transfer pricing rule) because section 153 (guarantees on issue of a security) operates to cause the guarantee given on the issue of the security to be treated as one that would not be given if the parties were at arm’s length.
Section 191: When sections 192 to 194 apply
390.This section explains that section 192 (as supplemented by sections 193 and 194) applies when interest paid under a security is disallowed under section 147 as a result of the operation of section 153 in the case of a guarantee given for liabilities under the security. It is based on paragraphs 1A(7), (9) and (10) and 6D(1) and (10) of Schedule 28AA to ICTA.
Section 192: Attribution to guarantor company of things done by issuing company
391.This section requires the guarantor company to be treated as the issuing company on the making of a claim but only in order to allow the guarantor company to obtain a deduction for the disallowed interest. It is based on paragraphs 1A(7) and 6D(2), (3), (10) and (11) of Schedule 28AA to ICTA.
392.The closing words of the first sentence of paragraph 6D(2) have not been rewritten as adding nothing to the preceding provisions of the sub-paragraph.
Section 193: Interaction between claims under sections 174 and 192(1)
393.This section ensures that only one compensating adjustment is given where the guarantor makes a claim under section 192 and the lender makes a claim under section 174. This may happen where the lender and borrower are connected for the purposes of this Part. It is based on paragraph 6D(4) to (7) of Schedule 28AA to ICTA.
Section 194: Claims under section 192(1): general provisions
394.This section explains who can make the claim under section 192 and applies the provisions, as appropriate, in sections 175 to 177. It is based on paragraph 6D(8) and (9) of Schedule 28AA to ICTA.
