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Corporate Finance Manual

Corporate Finance

Corporate finance includes fundraising and money management by the company. A business needs money to fund business start-up and growth and meet its day-to-day expenses. Some of its funding will come from offering shares, but at some point, virtually every company will also have to borrow money.

Nearly every company borrows and lends. A company may invest in a deposit account with surplus funds or may invest in another business. Some companies in use commercial paper to give their surpluses to each other, whereas others are investing in Eurobonds. The officials of a company have to determine whether to borrow from the bank or a relative.

The return on such repayments, or deposits and investments, can come in a variety of ways, such as interest, discount, higher asset value, or some other form of return. Most companies make foreign currency sales or acquisitions, borrow or lend in a foreign currency, and invest in property such as shares in a foreign currency subsidiary. A corporation will have gains or losses on foreign exchange in its accounts as a result of such purchases.

Similarly, there are threats and opportunities in all of these operations. Interest rates may increase or decrease, exchange rates may fluctuate, and debt counterparties may default. To handle these risks and control cash flow, a company may use derivative products such as futures, swaps and options. These goods can also be used for investment, trade, and speculate.

Such operations constitute corporate finance and regulated by the Corporate Finance Manual on the corporate tax treatment of such matters.

Corporate Finance Manual

The Corporate Finance Manual begins with an explanation of corporate finance's business and accounting background. It then explains the rules of corporate tax on credit relationships, foreign markets and derivative contracts.

1. Loan relationships

This clause is present in the tax rules on loan relationships of the Corporation Tax Act 2009. Under this section, one will find what loan relationships are and how they are taxed. It also discusses regulations on loans between corporate groups and related companies, certain specific types of corporations such as investment trusts, and some classes of debt such as funding bonds.

2. Derivative contracts

This clause is in the tax rules on derivative contract found in Part 7 of the 2009 Corporate Tax Act. Under this section, one will find out about current, forward, options and swaps related corporate tax laws.

3. Corporate debt

While Parts 5 to 7 of the Corporation Tax Act 2009 is the main body of the corporate debt tax rules, specific provisions are present in other legislation. Under this section, one will learn about the tax laws for banks and building societies, securitization companies, structured finance, regulated transactions, tax deductions, improvements to accounting practices, income stream transfers and team mismatch.

HMRC Corporate Finance Manual

HMRC’s manuals provide further guidance about the corporate finance manual.

  • Tax treatment of dividends and distributions from companies
  • Deduction of tax from interest
  • Business rules including the loan accounts of directors
  • CFM includes only the laws related to corporate tax purposes
  • Refer to the Property Income Manual (PIM) and the Information on Real Estate Investment Trusts Manual (GREIT) for information on the taxation of property firms
  • The Life Assurance Manual (LAM) and the General Insurance Manual (GIM) clarify how corporate tax rules apply to loan agreements. It also includes derivative contracts in insurance business taxation
  • Few rules that refer explicitly to the banking sector on corporate finance taxes
  • Content previously found in the Banking Manual included in the Corporate Finance Manual, and the International Manual are withdrawn
  • The VAT Finance Handbook guides VAT and financial services
  • The Corporate Finance Manual discusses the corporate finance tax rules from the domestic tax perspective

Usage of the Corporate Finance Manual

The CFM is intended primarily for HMRC employees and independent skilled advisors. They need to find out the correct technical position about corporate tax treatment for loan agreements, foreign exchange and derivative contracts.

Final thoughts

CFM usually provides information about the corporate finance business and accounting background. It further describes the corporate tax laws on credit relationships, foreign markets and derivative contracts. It is primarily used by the HMRC employees to understand the correct stance of their taxes agreements and foreign exchange. Any wrong or outdated material along with unauthentic links, should remove before it misguides the tax advisors.


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