Session 2012 - 13
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Finance (No. 2) Bill


Finance (No. 2) Bill
Schedule 18 — Real estate investment trusts: UK REITs which invest in other UK REITs

309

 

(b)   

it is a distribution of amounts shown in the financial

statements under section 532(2)(a) (statement of group’s

property rental business) as—

(i)   

profits or gains (or both) of UK members of the group,

or

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(ii)   

profits or gains (or both) of UK property rental

business of non-UK members of the group.

(6)   

In subsection (5) the reference to a distribution made by the principal

company includes a reference to a distribution made by the principal

company of the post-cessation group.

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(7)   

A distribution falls within this subsection if—

(a)   

it is made by a company UK REIT to a shareholder of the

company which is—

(i)   

a member of a group UK REIT, or

(ii)   

another company UK REIT, and

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(b)   

it is a distribution in respect of profits or gains (or both) of

property rental business of the company.

(8)   

In subsection (7) the reference to a distribution made by a company

UK REIT includes a reference to a distribution made by the post-

cessation company.”

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8          

In section 550 (attribution of distributions) in subsection (2)—

(a)   

for paragraph (a) substitute—

“(a)   

first, to distributions in satisfaction of the requirement

of section 530(1)(a) or 530(4)(a) (as the case may be),

(aa)   

second, to distributions in satisfaction of the

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requirement of section 530(1)(b) or 530(4)(b) (as the

case may be),”,

(b)   

in paragraph (b) for “second” substitute “third”,

(c)   

in paragraph (c) for “third” substitute “fourth”,

(d)   

in paragraph (d) for “fourth” substitute “fifth”, and

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(e)   

in paragraph (e) for “fifth” substitute “sixth”.

9          

In section 588 (joint ventures: effect of notice under section 586) after

subsection (6) insert—

“(7)   

Subsections (3) to (6) apply (in particular) for the purpose of

interpreting section 549A(5)(a)(i) and (7)(a)(i).”

35

10         

In section 589 (joint ventures: effect of notice under section 587) after

subsection (6) insert—

“(7)   

Subsections (3) to (6) apply (in particular) for the purpose of

interpreting section 549A(5)(a)(i) and (7)(a)(i).”

11         

In section 605 (property rental business: exclusion of business producing

40

listed income) after subsection (1) insert—

“(1A)   

But see section 549A which treats income falling within class 7 of the

table as profits of property rental business.”

12         

In Chapter 18 of Part 15 of ITA 2007 (deduction of income tax at source) in

sections 973 and 974 (which relate to distributions made by UK REITs) after

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Finance (No. 2) Bill
Schedule 19 — Tax mismatch schemes

310

 

subsection (6) insert—

“(7)   

In relation to references to profits of property rental business, see

section 549A of CTA 2010.”

13    (1)  

The amendments made by paragraph 4 above have effect for accounting

periods beginning on or after the day on which this Act is passed.

5

      (2)  

The amendment made by paragraph 7 above has effect in relation to

distributions as follows—

(a)   

in the case of a distribution received by a member of a group UK

REIT, the amendment has effect if the distribution is received in an

accounting period of the principal company of the group beginning

10

on or after the day on which this Act is passed, and

(b)   

in the case of a distribution received by a company UK REIT, the

amendment has effect if the distribution is received in an accounting

period of the company beginning on or after the day on which this

Act is passed,

15

           

and the other amendments made by this Schedule have effect accordingly.

Schedule 19

Section 41

 

Tax mismatch schemes

1          

CTA 2010 is amended in accordance with paragraphs 2 to 4.

2          

In section 1(4) (overview of Act), after paragraph (j) insert—

20

“(ja)   

tax mismatch schemes (see Part 21BA),”.

3          

After Part 21B insert—

“Part 21BA

Tax mismatch schemes

938O    

 Losses and profits from tax mismatch scheme to be disregarded

25

(1)   

This section applies to a company that is (at any time) a party to a tax

mismatch scheme.

(2)   

No scheme loss or profit made by the company in any accounting

period 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

30

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

matter—

(a)   

is treated, for the purposes of section 464(1) or (as the case

35

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)   

accordingly, may not be brought into account for any other

corporation tax purposes as respects that matter.

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Finance (No. 2) Bill
Schedule 19 — Tax mismatch schemes

311

 

938P    

  Meaning of “tax mismatch scheme”

(1)   

A scheme is a tax mismatch scheme if 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.

5

(3)   

The 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—

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(a)   

the purpose, or one of the main purposes, of the company 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

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relevant 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

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advantages 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.

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(8)   

Where, 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 938O

(scheme profits and losses to be left out of account) is to be

30

disregarded.

938Q    

  Meaning of “scheme loss” and “scheme profit”

(1)   

A loss or profit made by a company in an accounting period is a

“scheme loss” or “scheme profit” in relation to a tax mismatch

scheme if the loss or profit—

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(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

as a debit or credit for the purposes of Part 5 or 7 of CTA 2009,

and

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(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)   

Where, at the end of the accounting period—

 
 

Finance (No. 2) Bill
Schedule 19 — Tax mismatch schemes

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(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,

   

a loss or profit is to be treated as meeting the first asymmetry

5

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)   

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

10

(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”.

15

(5)   

The 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.

20

(6)   

References 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 938O (scheme profits

and losses to be left out of account) is to be disregarded.

25

938R    

  Meaning 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 company over the scheme period,

(b)   

meets the condition in subsection (3), and

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(c)   

is not negligible.

(2)   

In this Part “relevant tax disadvantage”, in relation to a scheme,

means an economic loss that—

(a)   

is made by the company over the scheme period,

(b)   

meets the condition in subsection (3), and

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(c)   

is not negligible.

(3)   

The condition is that the economic profit or loss arises as a result of

asymmetries in the way that the company brings, or does not bring,

amounts into account as debits and credits for the purposes of Part 5

or 7 of CTA 2009.

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(4)   

A 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

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economic profit and a decrease in an economic loss, and

 
 

Finance (No. 2) Bill
Schedule 19 — Tax mismatch schemes

313

 

(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.

938S    

  Meaning of references to economic profits and losses

5

(1)   

An economic profit or loss is to be computed for the purposes of this

Part taking into account, in particular—

(a)   

profits 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.

10

(2)   

In determining for the purposes of this Part the amount of an

economic profit or loss made by the company over the scheme

period, profits and losses made by the company are to be taken into

account only to the extent that they are attributable to times at which

the company is a party to the scheme.

15

938T    

  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 company over the

scheme period must be calculated on the assumption that the

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company—

(a)   

obtains the full tax benefit of any loss made by the company

in relation to a loan relationship or a derivative contract

during the period, and

(b)   

incurs the full tax cost of any profit made by the company in

25

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)   

the loss were brought into account as a debit or as a reduction

30

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.

(4)   

The “full tax cost” of a profit is the increase in the liability of the

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company to corporation tax that would result if—

(a)   

the profit were brought into account as a credit or as a

reduction in a debit for the purposes of Part 5 or 7 of CTA

2009, and

(b)   

the company’s profits chargeable to corporation tax,

40

disregarding the profit, were nil.

938U    

  Meaning of “scheme”

   

In this Part “scheme” includes any scheme, arrangements or

understanding of any kind whatever, whether or not legally

enforceable, involving a single transaction or two or more

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transactions.

 
 

 
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Revised 28 March 2013