Finance (No. 4) Bill

Session 2010 - 12
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Finance (No. 4) Bill

Finance (No. 4) Bill
Part 1 — Income tax, corporation tax and capital gains tax
Chapter 3 — Corporation tax: general
12

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Relief for expenditure on R&D
Schedule 3 contains provision about corporation tax relief for expenditure on
research and development.
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Real estate investment trusts
Schedule 4 amends Part 12 of CTA 2010 (real estate investment trusts).
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Anti-avoidance
22
Treatment of the receipt of manufactured overseas dividends
(1)
Part 17 of CTA 2010 (manufactured payments and repos) is amended as
follows.
(2)
In section 793 (company receiving manufactured overseas dividend from UK
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resident etc: amount treated as withheld on account of overseas tax), after
subsection (7) insert—
“(8)
If, in accordance with this section, the amount mentioned in section
792(3)(b) is not the amount deducted under section 922(2) of ITA 2007,
nothing in the Tax Acts is to be read as having the effect that, in relation
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to the persons mentioned in section 792(2) for the purposes mentioned
there, the difference between those amounts is to be regarded as an
amount on account of income tax.”
(3)
In section 812 (deemed manufactured payments: stock lending arrangements),
after subsection (5) insert—
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“(5A)
Where section 792 or 794 has effect in accordance with subsection (4) or
(5), nothing in the Tax Acts is to be read as having the effect that, in
relation to the persons mentioned in section 792(2) or 794(2) for the
purposes mentioned there, the amount that would otherwise have been
treated as an amount withheld on account of overseas tax is to be
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regarded as an amount on account of income tax.”
(4)
The amendments made by this section have effect in relation to overseas
dividends (within the meaning of Part 17 of CTA 2010) paid on or after 15
September 2011.
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Loan relationships: debts becoming held by connected company
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(1)
Chapter 6 of Part 5 of CTA 2009 (loan relationships: connected companies and
impairment losses and releases of debt) is amended as follows.
(2)
In section 362 (parties becoming connected where creditor’s rights subject to
impairment adjustment)—
(a)
in subsection (1)—
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(i)
omit paragraph (c) (impairment in pre-connection carrying
value of creditor’s loan relationship), and
(ii)
omit the “and” before that paragraph and, at the end of
paragraph (a), insert “and”,

Finance (No. 4) Bill
Part 1 — Income tax, corporation tax and capital gains tax
Chapter 3 — Corporation tax: general
13

(b)
for subsections (3) and (4) substitute—
“(3)
The amount treated as released is the amount (if any) by which
the pre-connection carrying value in D’s accounts exceeds the
pre-connection carrying value in C’s accounts.
(4)
In subsection (3)—
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“the pre-connection carrying value in D’s accounts” means
the amount that would be the carrying value of the
liability representing the loan relationship in D’s
accounts if a period of account had ended immediately
before C and D became connected, and
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“the pre-connection carrying value in C’s accounts”
means—
(a)
in any case where C was a party to the loan
relationship as creditor on the last day of the
period of account ending immediately before the
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one in which C and D became connected, the cost
of the asset representing the loan relationship
which would be given on that day on an
amortised cost basis of accounting, and
(b)
in any other case, the amount or value of any
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consideration given by C for the acquisition of
the asset representing the loan relationship.”,
and
(c)
in subsection (5)—
(i)
in the opening words, for “the carrying value is determined
25
taking no account of—” substitute “no account is to be taken
of—”,
(ii)
at the end of paragraph (a) insert “or”, and
(iii)
omit paragraph (c) (together with the “or” before that
paragraph), and
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(d)
in the heading, at the end insert “etc”.
(3)
After section 363 insert—
“363A
  Arrangements for avoiding section 361 or 362
(1)
This section applies in any case where arrangements are entered into
and the main purpose, or one of the main purposes, of any party in
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entering into them (or any part of them) is—
(a)
to avoid an amount being treated as released under section 361
or 362, or
(b)
to reduce the amount which is treated as released under section
361 or 362.
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(2)
The arrangements (or part of the arrangements) are not to achieve that
effect (so that an amount, or a greater amount, falls to be treated as
released under section 361 or 362).
(3)
In this section “arrangements” includes any agreement, understanding,
scheme, transaction or series of transactions (whether or not legally
45
enforceable).”
(4)
The amendments made by subsection (2) have effect as follows—
(a)
the amendments made by paragraphs (a), (b) and (d) have effect in

Finance (No. 4) Bill
Part 1 — Income tax, corporation tax and capital gains tax
Chapter 3 — Corporation tax: general
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relation to any case where the companies become connected on or after
27 February 2012, but if the companies become connected on or after
that date but before 1 April 2012 section 362 of CTA 2009 has effect as if
the following were substituted for subsections (3) and (4) of that
section—
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“(3)
The amount treated as released is whichever is the greater of the
following amounts—
(a)
the amount (if any) that the pre-connection carrying
value in C’s accounts would have been adjusted for
impairment if a period of account had ended
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immediately before the companies became connected,
and
(b)
the amount (if any) by which the pre-connection
carrying value in D’s accounts exceeds the pre-
connection carrying value in C’s accounts.
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(4)
In subsection (3) “the pre-connection carrying value”, in relation
to C’s accounts or D’s accounts, means the amount that would
be the carrying value of the asset or liability representing the
loan relationship in the accounts if a period of account had
ended immediately before the companies became connected.”,
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and
(b)
the amendments made by paragraph (c) have effect in relation to any
case where the companies become connected on or after 1 April 2012,

and section 363 of CTA 2009 applies for the purposes of this subsection as it
applies for the purposes of sections 361 to 362 of that Act.
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(5)
The amendment made by subsection (3) has effect in relation to—
(a)
arrangements entered into on or after 27 February 2012, or
(b)
arrangements entered into before that date where the amount is treated
as released, or would have been treated as released, on or after that
date.
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(6)
But subsection (5)(b) does not apply if the amount is treated as released, or
would have been treated as released, pursuant to an unconditional obligation
in a contract made before 27 February 2012.
(7)
An “unconditional” obligation is one which may not be varied or extinguished
by the exercise of a right (whether under the contract or otherwise).
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(8)
The conditions in section 361(1)(a) to (c) of CTA 2009 are treated as met (and
the remaining provisions of that section have effect accordingly) in any case
where—
(a)
arrangements are entered into by any party at any time,
(b)
directly or indirectly in consequence of, or otherwise in connection
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with, those arrangements a company (“C”) becomes a party to a loan
relationship as creditor,
(c)
the time at which C becomes a party to the loan relationship falls on or
after 1 December 2011 but before 27 February 2012,
(d)
directly or indirectly in consequence of, or otherwise in connection
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with, those arrangements C subsequently becomes connected with
another company (“D”) which is a party to the loan relationship as
debtor, and
(e)
that subsequent time falls before 27 February 2012.

Finance (No. 4) Bill
Part 1 — Income tax, corporation tax and capital gains tax
Chapter 3 — Corporation tax: general
15

(9)
For the purposes of subsection (8)—
(a)
“arrangements” includes any agreement, understanding, scheme,
transaction or series of transactions (whether or not legally
enforceable), and
(b)
the reference to C becoming connected with D is to be read in
5
accordance with section 363 of CTA 2009.
(10)
Subsections (8) and (9) are to have effect as if they were contained in Part 5 of
CTA 2009 (and the cases in which section 361 of CTA 2009 has effect in
accordance with subsection (8) include any case where C or D is a member of
a firm which becomes or is a party to the loan relationship and in that case
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references to C or D (other than references to the connection which C or D has
with a company) are references to the firm).
(11)
For the purpose of applying section 361 of CTA 2009 in accordance with
subsection (8) no account is to be taken of anything done on or after 27
February 2012.
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(12)
If section 361 of CTA 2009 has effect in accordance with subsection (8), section
362 of that Act does not apply.
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Companies carrying on businesses of leasing plant or machinery
(1)
CTA 2010 is amended as follows.
(2)
In section 385 (sales of lessors: no carry back of the expense)—
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(a)
for subsections (2) and (3) substitute—
“(2)
No part of a loss may be deducted under section 37(3)(b) (relief
for trade losses against total profits of earlier accounting
periods) from so much of the company’s total profits as derive
from the income.
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(3)
For the purpose of determining how much of those profits
derive from the income, those profits are to be calculated on the
basis that the income is the final amount to be added.”, and
(b)
in the heading, for “No carry back of the expense” substitute “No carry
back of loss against the income”.
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(3)
In section 392 (sales of lessors: “relevant change in relationship”), at the end
insert “or section 394ZA (company moving into tonnage tax)”.
(4)
After section 394 insert—
“394ZA
Company moving into tonnage tax
There is a relevant change in the relationship between A and a principal
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company of A on any day if the day ends immediately before the day
on which, for the purposes of Schedule 22 to FA 2000, A enters tonnage
tax.”
(5)
In section 394A (sales of lessors: “qualifying change of ownership”)—
(a)
the existing text becomes subsection (1), and
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(b)
after that subsection insert—
“(2)
If the qualifying change of ownership would (but for this
subsection) occur on any day as a result of—
(a)
section 393 or 394ZA, or

Finance (No. 4) Bill
Part 1 — Income tax, corporation tax and capital gains tax
Chapter 3 — Corporation tax: general
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(b)
section 394 or 394ZA,

it is treated instead for the purposes of the sales of lessors
Chapters as occurring on that day solely as a result of section
394ZA.”
(6)
In section 427 (sales of lessors: no carry back of the expense)—
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(a)
for subsections (2) and (3) substitute—
“(2)
No part of a loss may be deducted under section 37(3)(b) (relief
for trade losses against total profits of earlier accounting
periods) from so much of the company’s total profits as derive
from the income.
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(3)
For the purpose of determining how much of those profits
derive from the income, those profits are to be calculated on the
basis that the income is the final amount to be added.”, and
(b)
in the heading, for “No carry back of the expense” substitute “No carry
back of loss against the income”.
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(7)
In section 950 (transfers of trade without a change of ownership: transfers of
trade involving business of leasing plant or machinery), after subsection (3)
insert—
“(3A)
For the purposes of subsection (2)(a) the principal company or
companies of the predecessor immediately before the transfer are not to
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be regarded as the same as the principal company or companies of the
successor immediately afterwards (so far as they would otherwise have
been so regarded) if—
(a)
there is a relevant change in the relationship between the
successor and a principal company of the successor within
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section 394ZA (company moving into tonnage tax), and
(b)
that change occurs on or before the transfer day (whether the
change occurs on or after 21 March 2012 or before that date).”
(8)
The amendments made by subsections (2) and (6) have effect—
(a)
where the income arises as a result of a company entering tonnage tax
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for the purposes of Schedule 22 to FA 2000 on or after 21 March 2012, or
(b)
where the relevant day is on or after that date.
(9)
The amendments made by subsections (3) to (5) have effect where a company
enters tonnage tax for the purposes of Schedule 22 to FA 2000 on or after 21
March 2012.
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(10)
The amendment made by subsection (7) has effect where the transfer day is on
or after 21 March 2012.
Insurance
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Corporate members of Lloyd’s: stop-loss insurance and quota share contracts
(1)
In section 225 of FA 1994 (corporate members of Lloyd’s: stop-loss and quota
40
share insurance), after subsection (3B) insert—
“(3C)
Subsection (3D) applies to any premium which is payable by a
corporate member under a stop-loss insurance taken out in respect of

Finance (No. 4) Bill
Part 1 — Income tax, corporation tax and capital gains tax
Chapter 3 — Corporation tax: general
17

its underwriting business and in relation to which section 220(2)(a)
does not apply.
(3D)
The premium is to be treated for the purposes of the Corporation Tax
Acts—
(a)
as an amount that arises to the member directly from its
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membership of the syndicate or syndicates in relation to the
activities of which the stop-loss insurance was taken out, and
(b)
as if it were payable in the underwriting year in which the
profits or losses arising to the member directly from its
membership of the syndicate or syndicates concerned are
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declared.
(3E)
If a premium is payable under a stop-loss insurance in respect of two or
more underwriting years, the amount of the premium treated, as a
result of subsection (3D)(b), as payable in each of those years is to be
determined on a just and reasonable basis.
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(3F)
If—
(a)
a corporate member enters into a quota share contract, and
(b)
the main purpose, or one of the main purposes, of entering into
it was to secure that amounts payable by the member under the
contract were not dealt with on the basis set out in subsection
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(3G),

the contract is treated for the purposes of subsections (3C) to (3E) as if
it were a stop-loss insurance (and, accordingly, the amounts payable
under it are treated for those purposes as premiums).
(3G)
Amounts are dealt with on the basis set out in this subsection if they are
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treated as payable in the underwriting year in which the profits or
losses arising to a corporate member directly from its membership of
one or more syndicates are declared.”
(2)
The amendment made by this section has effect in relation to—
(a)
any stop-loss insurance (as defined by section 230(1) of FA 1994) taken
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out on or after 6 December 2011, or
(b)
any quota share contract (as defined by section 225(4) of FA 1994)
entered into on or after that date.
(3)
If before 6 December 2011 a corporate member enters into a multi-year
contract—
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(a)
insurance is to be regarded for the purposes of subsection (2)(a) as
taken out on the anniversary date of the contract which falls on or after
the day on which this Act is passed, and
(b)
premiums payable under the insurance in respect of an underwriting
year beginning on or after that day are premiums falling to be dealt
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with in accordance with the amendment made by this section.
(4)
For this purpose—
“multi-year contract” means a contract which (unless cancelled) operates
in respect of successive underwriting years, and
“the anniversary date of the contract” means the date which is the
45
anniversary of the date on which the contract was entered into.
(5)
If—

Finance (No. 4) Bill
Part 1 — Income tax, corporation tax and capital gains tax
Chapter 3 — Corporation tax: general
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(a)
before 6 December 2011 a corporate member enters into a contract for
insurance in respect of an underwriting year, and
(b)
on or after 6 December 2011 the contract is renewed in respect of a
further underwriting year (whether as a result of the exercise of an
option conferred by the contract or otherwise),
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insurance is to be regarded for the purposes of subsection (2)(a) as taken out on
the date of the renewal.
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Abolition of relief for equalisation reserves: general insurers
(1)
Sections 444BA to 444BD of ICTA (equalisation reserves) are repealed.
(2)
In consequence of the repeal of those sections, omit—
10
(a)
in TMA 1970, in the second column of the table in section 98, the entry
relating to regulations under section 444BB of ICTA and the entry
relating to regulations under section 444BD of ICTA,
(b)
in FA 1996, section 166 and Schedule 32,
(c)
in FA 2003, in section 153(1)(a), the reference “444BB(3)(b),”,
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(d)
in CTA 2009, paragraphs 155 and 156 of Schedule 1, and
(e)
in TIOPA 2010, paragraph 9 of Schedule 8.
(3)
The amendments made by this section have effect in relation to accounting
periods ending on or after such day (“the specified day”) as is specified in an
order made by the Treasury (and different days may be specified for different
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cases).
(4)
In the case of an insurance company’s existing equalisation or equivalent
reserve—
(a)
an amount equal to one-sixth of the amount of the reserve is to be
treated as a receipt of the company’s business in the calendar year in
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which the specified day falls, and
(b)
an amount equal to one-sixth of the amount of the reserve is to be
treated as a receipt of the company’s business in each of the next five
calendar years.
(5)
If there are different accounting periods falling in a calendar year, a receipt
30
arising as a result of subsection (4) is apportioned between those periods in
proportion to the number of days of the calendar year falling in those periods.
(6)
If—
(a)
the company ceases to carry on the business in a calendar year, and
(b)
an amount would otherwise have been treated as a result of subsection
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(4) as a receipt of the company’s business in a later calendar year,

any amount within paragraph (b) is treated instead as a receipt of the
company’s business in the accounting period in which the company ceased to
carry on the business.
(7)
For the purposes of this section—
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(a)
“equalisation reserve”, in relation to an insurance company, means the
equalisation reserve in respect of a business which the company was
required, by virtue of equalisation reserves rules (within the meaning
of section 444BA of ICTA), to maintain,
(b)
“equivalent reserve” means an equivalent reserve (within the meaning
45
of section 444BD of ICTA) in relation to which section 444BA of ICTA
applied,