Finance (No. 3) Bill (HC Bill 200)

(b) the advance under that arrangement is received, directly or
indirectly, from a member of the scheme group.

(2) References in this Part to amounts brought into account, or not
brought into account, as debits or credits for the purposes of Part 5 of
5CTA 2009 include amounts brought into account, or not brought into
account, for the purposes of any other provision so far as it applies
the charge to corporation tax on income to the repayment of the
advance.

(3) Sections 548 and 549 of CTA 2009 (meaning of debtor repo and
10debtor quasi-repo) apply for the purposes of this section.

(4) For the purposes of subsection (2) “the repayment of the advance”
means the consideration given on the purchase of securities
mentioned in condition D in section 548 or 549 of CTA 2009.

938J Schemes involving finance arrangements

(1) 15This section applies in relation to a scheme if—

(a) it includes a type 1, 2 or 3 finance arrangement under which
a member of the scheme group is the borrower, and

(b) the advance under that arrangement is received, directly or
indirectly, from a member of the scheme group.

(2) 20References in this Part to amounts brought into account, or not
brought into account, as debits or credits for the purposes of Part 5 of
CTA 2009 include amounts brought into account, or not brought into
account, for the purposes of any other provision so far as it applies
the charge to corporation tax on income to the repayment of the
25advance.

(3) Sections 758, 763 and 767 of this Act (meaning of type 1, 2 and 3
finance arrangements) apply for the purposes of this section.

(4) For the purposes of subsection (2) “the repayment of the advance”
means the payments mentioned in condition A in section 758, 763 or
30767 of this Act.

938K Trading income

References in this Part to amounts brought into account, or not
brought into account, as debits or credits for the purposes of Part 5
or 7 of CTA 2009 include amounts brought into account, or not
35brought into account, as expenses or receipts of a trade by virtue of
section 297 or 573 of that Act (trading credits and debits to be
brought into account under Part 3).

938L Foreign companies and foreign permanent establishments

(1) References in this Part to a company not bringing amounts into
40account as debits or credits for the purposes of Part 5 or 7 of CTA
2009 do not include the company not bringing amounts into account
by virtue of—

(a) the company being non-UK resident, or

(b) an election under section 18A of CTA 2009 (profits or losses
45of foreign permanent establishments).

(2) See section 938M for provision about controlled foreign companies.

938M Controlled foreign companies

(1) Paragraph 5(1) of Schedule 24 to ICTA (assumption that a controlled
foreign company is not a member of any group for the purposes of
any provision of the Tax Acts) does not apply for the purposes of this
5Part.

(2) References in this Part to a company bringing amounts into account,
or not bringing them into account, as debits or credits for the
purposes of Part 5 or 7 of CTA 2009 include bringing amounts into
account, or not bringing them into account, as debits or credits under
10that Part in determining the chargeable profits of the company (or in
determining that there were no such profits) for the purposes of
Chapter 4 of Part 17 of ICTA (controlled foreign companies).

938N Priority

For the purposes of this Part the following provisions are to be
15treated as of no effect—

(a) section 441 of CTA 2009 (loan relationships for unallowable
purposes);

(b) section 690 of that Act (derivative contracts for unallowable
purposes);

(c) 20Part 4 of TIOPA 2010 (transfer pricing);

(d) Part 6 of that Act (tax arbitrage);

(e) Part 7 of that Act (tax treatment of financing costs and
income).”

3 (1) Sections 938 to 940 of that Act are renumbered as follows—

(a) 25section 938 becomes section 940A,

(b) section 939 becomes section 940B, and

(c) section 940 becomes section 940C.

(2) In section 940A (as so renumbered)—

(a) in subsection (2), for “939” substitute “940B”,

(b) 30in subsection (3), for “940” substitute “940C”.

4 (1) Schedule 4 to that Act (index of defined expressions) is amended as follows.

(2) In the entry for “the predecessor (in Chapter 1 of Part 24)”—

(a) for “24” substitute “22”, and

(b) for “939(4)” substitute “940B(4)”.

(3) 35In the entry for “the successor (in Chapter 1 of Part 22)”, for “939(4)”
substitute “940B(4)”.

(4) In the entry for “trade (in Chapter 1 of Part 22)”, for “939(5)” substitute
“940B(5)”.

(5) In the entry for “transfer of a trade (in Chapter 1 of Part 24)”—

(a) 40for “24” substitute “22”, and

(b) for “939(2)” substitute “940B(2)”.

(6) In the entry for “the transferred trade (in Chapter 1 of Part 24)”—

(a) for “24” substitute “22”, and

(b) for “939(3)” substitute “940B(3)”.

(7) At the appropriate places insert—

5 (1) In section 147(6) of TIOPA 2010 (transfer pricing: basic rule), omit the “and”
at the end of paragraph (e) and at the end of paragraph (f) insert “, and

(g) 15section 938N of CTA 2010 (this Part treated as of no effect for
the purposes of Part 21B of CTA 2010 (group mismatch
schemes)).”

(2) In section 231 of that Act (tax arbitrage: overview), after subsection (7)
insert—

“(8) 20This Part has effect subject to section 938N of CTA 2010 (this Part
treated as of no effect for the purposes of Part 21B of CTA 2010
(group mismatch schemes)).”

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

6 (1) The amendments made by paragraphs 1, 2 and 5 have effect in relation to
25schemes entered into at any time (including any time before the
commencement date).

(2) But section 938A in Part 21B of CTA 2010 (as inserted by paragraph 2) does
not apply to—

(a) scheme losses or profits that relate to a time before the
30commencement date, or

(b) scheme profits that relate to a time on or after that date but are made
in relation to a scheme entered into before that date.

(3) In this Schedule “the commencement date” means the day on which this Act
is passed.

35Repeal of sections 418 to 419 of CTA 2009

7 (1) Omit sections 418 to 419 of CTA 2009 (loan relationships treated differently
by connected debtor and creditor).

(2) In consequence of the repeals made by sub-paragraph (1), omit—

(a) in section 748ZA of ICTA (as inserted by paragraph 5 of Schedule 12
to this Act), subsection (5)(a),

(b) in Schedule 30 to FA 2009, paragraph 4,

(c) 5in section 416 of CTA 2009, subsection (4),

(d) in Schedule 1 to CTA 2010, paragraph 615, and

(e) section 29 of this Act.

(3) The repeals made by this paragraph have effect in relation to loan
relationships to which a company is a party (or to which it is treated as a
10party under section 418(6A) of CTA 2009) on or after the commencement
date.

(4) But amounts are to continue to be brought into account for the purposes of
Part 5 of CTA 2009 disregarding the repeals made by sub-paragraph (1) if the
amounts relate to a time before the commencement date; and the repeals
15made by sub-paragraph (2) have effect accordingly.

Repeal of section 453 of CTA 2009

8 (1) Omit section 453 of CTA 2009 (connected parties deriving benefit from
creditor relationships).

(2) That repeal has effect in relation to loan relationships to which a company is
20a party on or after the commencement date.

(3) But amounts are to continue to be brought into account for the purposes of
Part 5 of CTA 2009 disregarding that repeal if the amounts relate to a time
before the commencement date.

Section 32

SCHEDULE 6 25Leasing businesses

Businesses carried on by companies alone

1 Chapter 3 of Part 9 of CTA 2010 (sale of lessors: leasing business carried on
by a company alone) is amended as follows.

2 (1) Section 387 (“business of leasing plant or machinery”) is amended as
30follows.

(2) In subsection (3), for “qualifying leased plant or machinery” substitute
“plant or machinery falling within subsection (7)”.

(3) For subsection (5) substitute—

“(5) Condition B is that at least half of the relevant company’s income in
35the past 12 months derives from plant or machinery falling within
subsection (7).”

(4) For subsections (7) and (8) substitute—

“(7) Plant or machinery falls within this subsection if—

(a) it is or at any time in the past 12 months has been leased out
by the relevant company or a qualifying associate,

(b) the lease under which it is or has been leased out is a plant or
machinery lease but not an excluded lease of background
5plant or machinery for a building (see section 437(3)), and

(c) if the plant or machinery satisfies paragraph (a) only because
it is or has been leased out by a qualifying associate, the lessee
under the lease is or was someone other than the relevant
company.

(8) 10For the purposes of subsection (7)—

(a) plant or machinery is “leased out” by a person if it is subject
to a plant or machinery lease under which that person is a
lessor,

(b) “associate” means a person connected with the relevant
15company (see also subsection (9)), and

(c) a person is a “qualifying associate” if the person is an
associate at the start of the relevant day or at any earlier time
in the past 12 months (whether or not a time when the plant
or machinery was leased out by the person).

(9) 20If the relevant company is owned by a consortium or is a qualifying
75% subsidiary of a company owned by a consortium, the reference
in subsection (8)(b) to a person connected with the relevant company
also includes—

(a) any member of the consortium, and

(b) 25any person connected with such a member.

(10) A reference in this section to the past 12 months is to the period of 12
months ending with the relevant day.”

3 In section 389 (provision supplementing section 388), in subsection (5)(b), for
“market value” substitute “ascribed value”.

4 30In section 390 (relevant plant or machinery value where relevant company
lessee under long funding lease etc), in subsection (2), for “market value”
substitute “ascribed value”.

5 In section 391 (relevant company’s income for condition B in section 387), in
subsection (5), for “qualifying leased plant or machinery” substitute “plant
35or machinery falling within section 387(7)”.

6 (1) Section 398G (transfers into and out of A) is amended as follows.

(2) Omit subsection (2).

(3) For subsection (3) substitute—

“(3) If any event occurs that requires A to bring the disposal value of
40plant or machinery into account under Part 2 of CAA 2001, that Part
has effect as if the disposal value that A is required to bring into
account were the higher of—

(a) the disposal value determined in accordance with that Part,
and

(b) 45the ascribed value of the plant or machinery.

(4) Section 265 of CAA 2001 (successions) is subject to this section.”

7 In section 401 (provisions supplementing section 400), in subsection (5)(b),
for “market value” substitute “ascribed value”.

8 In section 402 (“PM” where relevant company lessee under long funding
lease etc), in subsection (2), for “market value” substitute “ascribed value”.

9 (1) 5Section 403 (“TWDV” in section 399) is amended as follows.

(2) In subsection (2), for paragraph (b) substitute—

“(b) in calculating the amounts of unrelieved qualifying
expenditure mentioned in subsection (1)(a) to (c), any part of
those amounts that is relevant new expenditure is to be left
10out of account.”

(3) After that subsection insert—

“(3) Relevant new expenditure” means—

(a) expenditure attributable to plant or machinery acquired by
the relevant company on the relevant day except for plant or
15machinery acquired on that day from an associated
company, and

(b) expenditure incurred on the relevant day but attributable to
plant or machinery acquired by the relevant company before
that day.

(4) 20In subsection (3)—

(a) “acquired” includes brought into use or made available for
use for the first time for the purposes of the business, and

(b) a reference to anything acquired or incurred includes
anything treated as acquired or treated as incurred.”

25Businesses carried on by companies in partnership

10 Chapter 4 of Part 9 of CTA 2010 (sale of lessors: leasing business carried on
by a company in partnership) is amended as follows.

11 (1) Section 410 (“business of leasing plant or machinery”) is amended as
follows.

(2) 30In subsection (2), for “qualifying leased plant or machinery” substitute
“plant or machinery falling within subsection (6)”.

(3) For subsection (4) substitute—

“(4) Condition B is that at least half of the partnership’s income in the
past 12 months derives from plant or machinery falling within
35subsection (6).”

(4) For subsections (6) and (7) substitute—

“(6) Plant or machinery falls within this subsection if—

(a) it is or at any time in the past 12 months has been leased out
by the partnership or a qualifying associate,

(b) 40the lease under which it is or has been leased out is a plant or
machinery lease but not an excluded lease of background
plant or machinery for a building (see section 437(3)), and

(c) if the plant or machinery satisfies paragraph (a) only because
it is or has been leased out by a qualifying associate, the lessee
under the lease is or was someone other than the partnership.

(7) For the purposes of subsection (6)—

(a) 5plant or machinery is “leased out” by a person if it is subject
to a plant or machinery lease under which that person is a
lessor,

(b) “associate” means a person who is a partner in the
partnership or connected with a partner in the partnership
10(see also subsection (8)), and

(c) a person is a “qualifying associate” if the person is an
associate at the start of the relevant day or at any earlier time
in the past 12 months (whether or not a time when the plant
or machinery was leased out by the person).

(8) 15In relation to a corporate partner who is owned by a consortium or is
a qualifying 75% subsidiary of a company owned by a consortium,
the reference in subsection (7)(b) to a person connected with a
partner also includes—

(a) any member of the consortium, and

(b) 20any person connected with such a member.

(9) A reference in this section to the past 12 months is to the period of 12
months ending with the relevant day.”

12 In section 412 (provision supplementing section 411), in subsection (5)(b), for
“market value” substitute “ascribed value”.

13 25In section 413 (relevant plant or machinery value where partnership lessee
under long funding lease etc), in subsection (2), for “market value”
substitute “ascribed value”.

14 In section 414 (partnership’s income for condition B in section 410), in
subsection (5), for “qualifying leased plant or machinery” substitute “plant
30or machinery falling within section 410(6)”.

15 (1) Section 421 (the amount of the income: the basic amount) is amended as
follows.

(2) In subsection (6), for paragraph (b) substitute—

“(b) in calculating the amounts of unrelieved qualifying
35expenditure mentioned in subsection (5)(a) to (c), any part of
those amounts that is relevant new expenditure is to be left
out of account.”

(3) After that subsection insert—

“(6A) Relevant new expenditure” means—

(a) 40expenditure attributable to plant or machinery acquired by
the partnership on the relevant day except for plant or
machinery acquired on that day from a qualifying company,
and

(b) expenditure incurred on the relevant day but attributable to
45plant or machinery acquired by the partnership before that
day.

(6B) In subsection (6A)—

(a) “acquired” includes brought into use or made available for
use for the first time for the purposes of the business, and

(b) a reference to anything acquired or incurred includes
5anything treated as acquired or treated as incurred.”

Anti-avoidance provisions

16 Chapter 5 of Part 9 of CTA 2010 (sales of lessors: anti-avoidance provisions)
is amended as follows.

17 (1) Section 434 (introduction to sections 435 and 436) is amended as follows.

(2) 10In subsection (2), for “question A or B” substitute “question A, B or C”.

(3) After subsection (4) insert—

“(5) Question C is the question of the amount of any disposal value to be
substituted by section 398G(3).”

18 (1) Section 435 (disregard of increases or decreases in balance sheet amounts) is
15amended as follows.

(2) In subsection (1), for paragraph (a) substitute—

“(a) an amount mentioned in subsection (1A) is to be ascertained
for the purpose of determining a question as to the
application of Chapter 3 or 4,”.

(3) 20After that subsection insert—

“(1A) The amounts are—

(a) the relevant plant or machinery value,

(b) the value of plant or machinery falling within section 387(7)
or 410(6),

(c) 25the relevant company’s or partnership’s income in the period
of 12 months ending with the relevant day,

(d) the amount of PM,

(e) the amount of TWDV,

(f) the amount of any disposal value to be substituted by section
30398G(3), and

(g) any underlying amount required to calculate or verify an
amount mentioned in any of the preceding paragraphs.”

(4) In subsection (2)—

(a) omit “or” at the end of paragraph (b), and

(b) 35at the end of paragraph (c) insert “, or

(d) the amount of any disposal value to be substituted by
section 398G(3) would be reduced.”

(5) In subsection (3), for “which falls (or would fall) to be shown in the balance
sheet in respect of plant or machinery” substitute “to be ascertained”.

(6) 40Accordingly, in the heading of that section, for “in balance sheet amounts”
substitute “in certain amounts”.

19 In section 436 (balance sheet amounts determined on assumption company

has no liabilities), after subsection (6) insert—

“(7) Except for subsection (6), this section applies to a partnership as it
applies to a company, and references to “company” are to be read
accordingly.”

5General interpretation of sales of lessors Chapters

20 Chapter 6 of Part 9 of CTA 2010 (sales of lessors: general interpretation) is
amended as follows.

21 In section 437, omit subsection (9) (definition of “market value”).

22 After that section insert—

“437A 10 Determining the ascribed value of plant or machinery

(1) For the purposes of the sales of lessors Chapters, the ascribed value
of plant or machinery at any given time (“the relevant time”) is the
value determined in accordance with this section.

(2) Subsection (3) applies to plant or machinery if—

(a) 15it is subject to a plant or machinery lease at the relevant time,

(b) the relevant company or partnership is a lessor under the
lease, and

(c) subsection (5) does not apply to it.

(3) The ascribed value of plant or machinery to which this subsection
20applies is the higher of—

(a) the market value of the plant or machinery at the relevant
time, and

(b) the present value at that time of the lease referred to in
subsection (2).

(4) 25Subsection (5) applies to plant or machinery if—

(a) it is subject to a plant or machinery lease at the relevant time,

(b) the lease is an equipment lease within the meaning of
Chapter 14 of Part 2 of CAA 2001 (fixtures),

(c) the relevant company or partnership is the equipment lessor
30in respect of the lease (see section 174 of that Act), and

(d) the equipment lessor is treated at that time as the owner of
the plant or machinery by virtue of an election made in
reliance on section 177(1)(a)(i) of that Act (which permits
elections if the conditions in section 178 are met in relation to
35the lease).

(5) The ascribed value of plant or machinery to which this subsection
applies is the present value at the relevant time of the lease referred
to in subsection (4).

(6) The ascribed value of plant or machinery to which neither subsection
40(3) nor subsection (5) applies is the market value of the plant or
machinery at the relevant time.

437B Section 437A: supplementary