(a) the definition of “relevant housing provider” in section 809ZJ(8) of
ITA 2007;

(b) the definition of “relevant housing provider” in section 939C(8) of
CTA 2010.

Section 28

5SCHEDULE 4 Amounts not fully recognised for accounting purposes

Loan relationships

1 Part 5 of CTA 2009 (loan relationships) is amended as follows.

2 (1) Section 311 (amounts not fully recognised for accounting purposes) is
10amended as follows.

(2) In subsection (2)—

(a) at the end of paragraph (a) insert “and”, and

(b) for paragraphs (b) and (c) substitute—

“(b) as a result of tax avoidance arrangements to which the
15company is at any time a party, an amount is (in
accordance with generally accepted accounting
practice) not fully recognised for the period in respect
of the creditor relationship.”

(3) Omit subsections (3) to (5A).

(4) 20In subsection (6)—

(a) in the opening words—

(i) after “section” insert “and section 312”, and

(ii) omit “, a contribution to it or securities issued by it”, and

(b) in paragraphs (a) and (b), omit “, contribution or securities”.

(5) 25After subsection (6) insert—

“(7) For the purposes of this section arrangements are “tax avoidance
arrangements” if the main purpose, or one of the main purposes, of
any party to the arrangements, in entering into them, is to obtain a
tax advantage.

(8) 30In subsection (7) “arrangements” includes any arrangements,
scheme or understanding of any kind, whether or not legally
enforceable, involving a single transaction or two or more
transactions.

(9) For the purposes of this section a company is to be treated as a party
35to a creditor relationship even though it has disposed of its rights
under the relationship to another person—

(a) under a repo or stock lending arrangement, or

(b) under a transaction which is treated as not involving any
disposal as a result of section 26 of TCGA 1992 (mortgages
40and charges not to be treated as disposals).”

3 (1) Section 312 (determination of credits and debits where amounts not fully
recognised) is amended as follows.

(2) For subsection (1A) substitute—

“(1A) Subsection (1B) applies in a case where—

(a) 5pursuant to the arrangements mentioned in section 311(2)(b),
the company becomes, or is treated as becoming, a party to a
debtor relationship, and

(b) an amount is (in accordance with generally accepted
accounting practice) not fully recognised for any period in
10respect of the debtor relationship.”

(3) In subsection (1B) omit “by reference to which that condition is met”.

(4) In subsection (3) for “But” substitute “But—

(a) no debits are, as a result of this section, to be brought into
account by the company in respect of the creditor
15relationship mentioned in section 311(2), and

(b)”.

4 In section 440 (overview of Chapter 15), in subsection (2), omit the “and” at
the end of paragraph (e), and after paragraph (f) insert “, and

(g) for rules about debits arising as a result of the derecognition
20of creditor relationships, see section 455A.”

5 After section 455 insert—

“Derecognition

455A Debits arising from derecognition of creditor relationships

(1) This section applies where—

(a) a company is at any time a party to tax avoidance
25arrangements,

(b) as a result of those arrangements, a creditor relationship to
which the company is party, or any part of such a
relationship, is (in accordance with generally accepted
accounting practice) derecognised by the company, and

(c) 30the company continues to be a party to the creditor
relationship immediately after the transaction or other event
giving rise to the derecognition.

(2) No debit that would apart from this section be brought into account
by the company for the purposes of this Part as a result of the
35derecognition is to be so brought into account.

(3) An amount that would be brought into account for the purposes of
this Part as respects any matter apart from this section—

(a) is treated for the purposes of section 464(1) (priority of this
Part for corporation tax purposes) as if it were so brought into
40account, and

(b) accordingly, may not be brought into account for any other
corporation tax purposes as respects that matter.

(4) For the purposes of this section a company is to be treated as a party
to a creditor relationship even though it has disposed of its rights
under the relationship to another person—

(a) under a repo or stock lending arrangement, or

(b) 5under a transaction which is treated as not involving any
disposal as a result of section 26 of TCGA 1992 (mortgages
and charges not to be treated as disposals).

(5) For the purposes of this section arrangements are “tax avoidance
arrangements” if the main purpose, or one of the main purposes, of
10any party to the arrangements, in entering into them, is to obtain a
tax advantage.

(6) In subsection (5) “arrangements” includes any arrangements,
scheme or understanding of any kind, whether or not legally
enforceable, involving a single transaction or two or more
15transactions.”

6 In section 464 (priority of Part for corporation tax purposes), in subsection
(4), omit the “and” at the end of paragraph (a) and after paragraph (b) insert
“, and

“(c) section 455A(3) (debits arising from derecognition of creditor
20relationships).”

Derivative contracts

7 Part 7 of CTA 2009 (derivative contracts) is amended as follows.

8 (1) Section 599A (amounts not fully recognised for accounting purposes) is
amended as follows.

(2) 25In subsection (2)—

(a) at the end of paragraph (a) insert “and”, and

(b) for paragraphs (b) and (c) substitute—

“(b) as a result of tax avoidance arrangements to which the
company is at any time a party, an amount is (in
30accordance with generally accepted accounting
practice) not fully recognised for the period in respect
of the contract.”

(3) Omit subsections (3) to (5B).

(4) In subsection (6)—

(a) 35in the opening words, omit “, a contribution to it or securities issued
by it”, and

(b) in paragraphs (a) and (b), omit “, contribution or securities”.

(5) After subsection (6) insert—

“(7) For the purposes of this section arrangements are “tax avoidance
40arrangements” if the main purpose, or one of the main purposes, of
any party to the arrangements, in entering into them, is to obtain a
tax advantage.

(8) In subsection (7)—

(a) “arrangements” includes any arrangements, scheme or
45understanding of any kind, whether or not legally

enforceable, involving a single transaction or two or more
transactions, and

(b) “tax advantage” has the meaning given by section 1139 of
CTA 2010.

(9) 5For the purposes of this section a company is to be treated as a party
to a derivative contract even though it has disposed of its rights and
liabilities under the contract to another person—

(a) under a repo or stock lending arrangement, or

(b) under a transaction which is treated as not involving any
10disposal as a result of section 26 of TCGA 1992 (mortgages
and charges not to be treated as disposals).”

9 (1) Section 599B (determination of credits and debits where amounts not fully
recognised) is amended as follows.

(2) After subsection (2) insert—

“(2A) 15But no debits are, as a result of this section, to be brought into
account by the company in respect of the derivative contract.”

(3) After subsection (3) insert—

“(4) If—

(a) the company is, or is treated as, a party to the contract at the
20beginning of the period referred to in section 599A(1), and

(b) the fair value of the contract at that time is greater than the
carrying value of that contract at that time,

a credit of an amount equal to the difference is to be brought into
account for that period for the purposes of this Part in respect of the
25contract.”

10 In section 689 (overview of Chapter 11), in subsection (2), omit the “and” at
the end of paragraph (c), and after paragraph (d) insert “, and

(e) for rules about debits arising as a result of the derecognition
of derivative contracts, see section 698A.”

11 30After section 698 insert—

“Derecognition

698A Debits arising from derecognition of derivative contracts

(1) This section applies where—

(a) a company is at any time a party to tax avoidance
35arrangements,

(b) as a result of those arrangements, a derivative contract to
which the company is party, or any part of such a contract, is
(in accordance with generally accepted accounting practice)
derecognised by the company, and

(c) 40the company continues to be a party to the derivative contract
immediately after the transaction or other event giving rise to
the derecognition.

(2) No debit that would apart from this section be brought into account
by the company for the purposes of this Part as a result of the
45derecognition is to be so brought into account.

(3) An amount that would be brought into account for the purposes of
this Part as respects any matter apart from this section—

(a) is treated for the purposes of section 699(1) (priority of this
Part for corporation tax purposes) as if it were so brought into
5account, and

(b) accordingly, may not be brought into account for any other
corporation tax purposes as respects that matter.

(4) For the purposes of this section a company is to be treated as a party
to a derivative contract even though it has disposed of its rights and
10liabilities under the contract to another person—

(a) under a repo or stock lending arrangement, or

(b) under a transaction which is treated as not involving any
disposal as a result of section 26 of TCGA 1992 (mortgages
and charges not to be treated as disposals).

(5) 15For the purposes of this section arrangements are “tax avoidance
arrangements” if the main purpose, or one of the main purposes, of
any party to the arrangements, in entering into them, is to obtain a
tax advantage.

(6) In subsection (5)—

(a) 20“arrangements” includes any arrangements, scheme or
understanding of any kind, whether or not legally
enforceable, involving a single transaction or two or more
transactions, and

(b) “tax advantage” has the meaning given by section 1139 of
25CTA 2010.”

Consequential repeals

12 In consequence of the amendments made by this Schedule, omit—

(a) in Schedule 30 to FA 2009, paragraph 2(1) to (6), and

(b) in Schedule 5 to F(No.2)A 2010, paragraphs 1 and 3.

30Commencement

13 (1) The amendments made by this Schedule have effect in relation to periods of
account beginning on or after 6 December 2010.

(2) But, for the purposes of sub-paragraph (1), a period of account beginning
before, and ending on or after, 6 December 2010 is to be treated as if so much
35of the period as falls before that date, and so much of the period as falls on
or after that date, were separate periods of account.

(3) The following provisions of CTA 2009 do not have effect where they apply
by reason of tax avoidance arrangements to which the company became a
party before 23 March 2011—

(a) 40section 312(3)(a) (as inserted by paragraph 3(4) of this Schedule);

(b) section 599B(2A) (as inserted by paragraph 9(2) of this Schedule);

(c) section 599B(4) (as inserted by paragraph 9(3) of this Schedule).

Section 30

SCHEDULE 5 Group mismatch schemes

Insertion of new Part 21B of CTA 2010 and consequential amendments

1 In section 1(4) of CTA 2010 (overview of Act), omit the “and” at the end of
5paragraph (h), and after paragraph (i) insert—

“(j) group mismatch schemes (see Part 21B).”

2 After Part 21A of that Act insert—

“ Part 21B Group mismatch schemes

938A 10Losses and profits from group mismatch schemes to be disregarded

(1) This section applies to a company that—

(a) is (at any time) a party to a group mismatch scheme, and

(b) is a member of the scheme group.

(2) No scheme loss or profit made by the company in any accounting
15period in relation to the scheme is to be brought into account as a
debit or credit for the purposes of Part 5 of CTA 2009 (loan
relationships) or Part 7 of that Act (derivative contracts).

(3) An amount that would, apart from this section, be brought into
account for the purposes of Part 5 or 7 of that Act as respects any
20matter—

(a) is treated, for the purposes of section 464(1) or (as the case
may be) 699(1) of that Act (priority of Part 5 or 7 for
corporation tax purposes) as if it were so brought into
account, and

(b) 25accordingly, may not be brought into account for any other
corporation tax purposes as respects that matter.

938B Meaning of “a group mismatch scheme” and “the scheme group”

(1) A scheme is “a group mismatch scheme” if—

(a) the parties to the scheme are, or include, members of the
30same group, and

(b) condition A or B is met.

(2) Condition A is that, at the time the scheme is entered into, there is no
practical likelihood that the scheme will fail to secure a relevant tax
advantage of £2 million or more.

(3) 35The Treasury may by order substitute a higher amount for the
amount for the time being specified in subsection (2).

(4) Any such substitution is to have effect in relation to schemes entered
into on or after the day on which the order comes into force.

(5) Condition B is that—

(a) 40the purpose, or one of the main purposes, of any member of
the scheme group in entering into the scheme is to obtain the

chance of securing a relevant tax advantage (of any amount),
and

(b) at the time the scheme is entered into—

(i) there is no chance that the scheme will secure a
5relevant tax disadvantage, or

(ii) there is such a chance, but the expected value of the
scheme is nevertheless a positive amount.

(6) If, at the time the company enters into the scheme, there are chances
that the scheme would, if carried out, secure different relevant tax
10advantages or disadvantages in different circumstances, the
amounts and probabilities of each must be taken into account in
determining the expected value of the scheme.

(7) In determining whether condition A or B is met, it is to be assumed
that the parties to the scheme carry it out.

(8) 15Where, at the time the scheme is entered into, the length of the
scheme period is uncertain, condition A or B is met if it would be met
on any reasonable assumption as to the length of the scheme period.

(9) In determining whether condition A or B is met, section 938A
(scheme profits and losses to be left out of account) is to be
20disregarded.

(10) In this Part “the scheme group” means the group mentioned in
subsection (1)(a).

938C Meaning of “scheme loss” and “scheme profit”

(1) A loss or profit made by a company in an accounting period is a
25“scheme loss” or “scheme profit” in relation to a group mismatch
scheme if the loss or profit—

(a) arises from a transaction, or series of transactions, that forms
part of the scheme,

(b) is, or is comprised in, an amount that is brought into account
30as a debit or credit for the purposes of Part 5 or 7 of CTA 2009,
and

(c) meets the first or second asymmetry condition.

(2) The first asymmetry condition is that the loss or profit affects the
amount of any relevant tax advantage secured by the scheme.

(3) 35Where, at the end of the accounting period—

(a) it is not certain whether the scheme will secure a relevant tax
advantage, or

(b) it is not certain what the amount of the relevant tax
advantage secured by the scheme will be,

40a loss or profit is to be treated as meeting the first asymmetry
condition if, at that time, there is a chance that the scheme will secure
a relevant tax advantage and that the loss or profit will affect its
amount.

(4) Where—

(a) 45a loss or profit meets the conditions in subsection (1)(a) and
(b), and

(b) a part, but not the whole, of the loss or profit meets the first
asymmetry condition,

only that part of the loss or profit is a “scheme loss” or “scheme
profit”.

(5) 5The second asymmetry condition is that the loss or profit—

(a) does not meet the first asymmetry condition, but

(b) arises from a transaction, or series of transactions, that might
(if events had turned out differently) have given rise to a loss
or profit that would have done so.

(6) 10References in this section to a loss or profit include a loss or profit
arising in respect of interest or expenses.

(7) In determining whether the condition in subsection (1)(b) or the first
or second asymmetry condition is met, section 938A (scheme profits
and losses to be left out of account) is to be disregarded.

938D 15Meaning of “relevant tax advantage” etc and “the scheme period”

(1) In this Part “relevant tax advantage”, in relation to a scheme, means
an economic profit that—

(a) is made by the scheme group over the scheme period,

(b) meets the condition in subsection (3), and

(c) 20is not negligible.

(2) In this Part “relevant tax disadvantage”, in relation to a scheme,
means an economic loss that—

(a) is made by the scheme group over the scheme period,

(b) meets the condition in subsection (3), and

(c) 25is not negligible.

(3) The condition is that the economic profit or loss arises as a result of
asymmetries in the way different members of the scheme group
bring, or do not bring, amounts into account as debits and credits for
the purposes of Part 5 or 7 of CTA 2009.

(4) 30A reference in this section to asymmetries includes, in particular—

(a) asymmetries relating to quantification, and

(b) asymmetries relating to timing.

(5) In this section—

(a) a reference to an economic profit includes an increase in an
35economic profit and a decrease in an economic loss, and

(b) a reference to an economic loss includes an increase in an
economic loss and a decrease in an economic profit.

(6) In this Part “the scheme period”, in relation to a scheme, means the
period during which the scheme has effect.

938E 40Meaning of “group”

(1) For the purposes of this Part a company (“company A”) is a member
of a group, in relation to a scheme, if any other company is at any
time in the scheme period associated with company A.

(2) The group consists of company A and each company in relation to
which the condition in subsection (1) is met.

(3) For the purposes of this section a company (“company B”) is
associated with company A at a time (“the relevant time”) if any of
5the following five conditions is met.

(4) The first condition is that the financial results of company A and
company B, for a period that includes the relevant time, meet the
consolidation condition.

(5) The second condition is that there is a connection between company
10A and company B for the accounting period of company A in which
the relevant time falls.

(6) The third condition is that, at the relevant time, company A has a
major interest in company B or company B has a major interest in
company A.

(7) 15The fourth condition is that—

(a) the financial results of company A and a third company, for
a period that includes the relevant time, meet the
consolidation condition, and

(b) at the relevant time the third company has a major interest in
20company B.

(8) The fifth condition is that—

(a) there is a connection between company A and a third
company for the accounting period of company A in which
the relevant time falls, and

(b) 25at the relevant time the third company has a major interest in
company B.

(9) In this section, the financial results of any two companies for any
period meet “the consolidation condition” if—

(a) they are required to be comprised in group accounts,

(b) 30they would be required to be comprised in such accounts but
for the application of an exemption, or

(c) they are in fact comprised in such accounts.

(10) In subsection (9), “group accounts” means accounts prepared
under—

(a) 35section 399 of the Companies Act 2006, or

(b) any corresponding provision of the law of a territory outside
the United Kingdom.

(11) The following provisions apply for the purposes of this section—

• sections 466 to 471 of CTA 2009 (companies connected for
  40accounting period), and

• sections 473 and 474 of CTA 2009 (meaning of “major interest”).

938F Meaning of references to economic profits and losses

(1) An economic profit or loss is to be computed for the purposes of this
Part taking into account, in particular—

(a) 45profits and losses made as a result of the operation of the
Corporation Tax Acts, and

(b) any adjustments required to reflect the time value of money.

(2) A reference in this Part to an economic profit or loss made by the
scheme group over the scheme period is to an economic profit or loss
made in that period by the members of the group considered
5together.

(3) In determining for the purposes of this Part the amount of an
economic profit or loss made by the scheme group over the scheme
period, profits and losses made by a member of the group are to be
taken into account only to the extent that they are attributable to
10times at which the member is a party to the scheme.

938G Tax capacity assumption

(1) This section applies for the purpose of determining whether a
scheme will, or might, secure a relevant tax advantage.

(2) The economic profits and losses made by the scheme group over the
15scheme period must be calculated on the assumption that each
company that is at any time a party to the scheme—

(a) obtains the full tax benefit of any loss made by that company
in relation to a loan relationship or a derivative contract
during the period, and

(b) 20incurs the full tax cost of any profit made by that company in
relation to a loan relationship or a derivative contract during
the period.

(3) The “full tax benefit” of a loss is the reduction in the liability of the
company to corporation tax that would result if—

(a) 25the loss were brought into account as a debit or as a reduction
in a credit for the purposes of Part 5 or 7 of CTA 2009, and

(b) the company’s profits chargeable to corporation tax,
disregarding the loss, were equal to the debit (or the
reduction in the credit) determined by reference to the loss.