Finance Bill (HC Bill 57)

economic environment in which the business or part
operates, and

(b) “assets, liabilities, income and expenses” and “item of other
comprehensive income” each has the meaning that it has for
5accounting purposes.

(3B) No amount is to be brought into account for the purposes of this Part
in respect of an exchange gain or loss of an investment company
(within the meaning of section 17 of CTA 2010) which would not
have arisen but for a change in the company’s functional currency
10(within the meaning of section 17(4) of that Act) as between—

(a) the period of account of the company in which the gain or
loss arises, and

(b) a period of account of the company ending in the 12 months
immediately preceding that period.

(3C) 15But subsection (3B) does not apply to an exchange gain or loss arising
at a time when an election under section 9A of CTA 2010 (designated
currency of UK resident investment company) has effect in relation
to the company.””

(5) For subsection (4) substitute—

“(4) 20The Treasury may by regulations make provision—

(a) excluding exchange gains or losses of a specified description
from being brought into account for the purposes of this Part,

(b) requiring exchange gains or losses of a specified description
which would not otherwise be brought into account for the
25purposes of this Part to be brought into account in specified
circumstances,

(c) as to the way in which, including the currency by reference to
which, any exchange gains or losses to be brought into
account as a result of provision made under paragraph (b) are
30to be calculated, and

(d) as to the way in which any such exchange gains or losses are
to be brought into account.

(4ZA) For the purposes of subsection (4)(b), it does not matter whether the
exchange gains or losses would otherwise be excluded from being
35brought into account as a result of regulations under subsection
(4)(a) or otherwise.””

(6) Omit subsections (4A) and (5).

(7) For subsection (6) substitute—

“(6) The reference in subsection (4) to bringing exchange gains or losses
40into account is a reference to bringing them into account—

(a) for the purposes of this Part as credits or debits arising to a
company from its loan relationships, or

(b) for the purposes of corporation tax on chargeable gains.””

21 Omit sections 328A to 328H (loan relationships: arrangements that have a
45“one-way exchange effect”) (which are superseded by the amendment made
by paragraph 51).

22 (1) Section 329 (pre-loan relationship and abortive expenses) is amended as
follows.

(2) In subsection (1)(c), for “section 307(3)(c)” substitute “section 306A(1)(c)”.

(3) In subsection (2), for “section 307(3)” substitute “section 307(2)”.

23 5After section 330 insert—

““Company is not, or has ceased to be, party to loan relationship

330A Company is not, or has ceased to be, party to loan relationship

(1) This section applies if—

(a) amounts in respect of a qualifying relationship are
10recognised in a company’s accounts for an accounting period
(“the current period”) as an item of profit or loss even though
during all or part of the period the company is not a party to
the qualifying relationship,

(b) any of conditions A to D is met, and

(c) 15in the absence of this section, the credits and debits brought
into account by the company for the purposes of this Part or
Part 7 for the current period would not include credits or
debits representing the whole of those amounts.

(2) In this section “qualifying relationship” means—

(a) 20a loan relationship, or

(b) a relationship that would be a loan relationship if references
in section 302(1) to a company were references to any person.

References in this section to a company being a party to a qualifying
relationship are to be read accordingly.

(3) 25Condition A is that—

(a) the company was a party to the qualifying relationship,

(b) amounts in respect of the qualifying relationship were
recognised in the company’s accounts as an item of profit or
loss when it was a party to the relationship, and

(c) 30any amounts in respect of the relationship continue to be
recognised in those accounts as an item of profit or loss.

(4) Condition B is that the amounts recognised as mentioned in
subsection (1)(a) are recognised as a result of a transaction which has
the effect of transferring to the company all or part of the risk or
35reward relating to the qualifying relationship without a
corresponding transfer of rights or obligations under the
relationship.

(5) Condition C is that the amounts recognised as mentioned in
subsection (1)(a) are recognised as a result of a related transaction in
40relation to a qualifying relationship to which the company was, but
has ceased to be, a party.

(6) Condition D is that—

(a) the amounts recognised as mentioned in subsection (1)(a) are
recognised because the company may enter into a qualifying

relationship or related transaction but has not yet done so,
and

(b) the amounts are not expenses to which section 329 applies.

(7) The company must bring credits and debits into account for the
5purposes of this Part for the accounting period as if the company
were a party to the qualifying relationship for the whole of the
accounting period.

(8) The amounts that must be brought into account are those amounts in
respect of the qualifying relationship that are recognised in the
10company’s accounts for the accounting period as an item of profit or
loss (but subject to the provisions of this Part).

(9) This section is subject to sections 330B and 330C.

(10) In this section—

• “item of profit or loss” has the meaning it has for accounting
  15purposes;

• “recognised” means recognised in accordance with generally
  accepted accounting practice;

• “related transaction”, in relation to a qualifying relationship, is
  to be read as if the references in section 304(1) and (2) to a loan
  20relationship were to a qualifying relationship.

330B Exclusion of debit where relief allowed to another

  A company is not to bring into account as a debit for the purposes of
this Part as a result of section 330A an amount which—

(a) is brought into account as a debit for those purposes by
25another company,

(b) is brought into account so as to reduce the assumed taxable
total profits of another company for the purposes of Part 9A
of TIOPA 2010 (controlled foreign companies), or

(c) is allowable as a deduction by a person for the purposes of
30income tax.

330C Avoidance of double charge

(1) This section applies if at any time a company (“the relevant
company”) is required by section 330A to bring into account as a
credit for the purposes of this Part an amount—

(a) 35which is brought into account as a credit for those purposes
by another company,

(b) which is brought into account in determining the assumed
taxable total profits of another company for the purposes of
Part 9A of TIOPA 2010 (controlled foreign companies), or

(c) 40on which a person is charged to income tax.

(2) In order to avoid a double charge to tax in respect of the amount, the
relevant company may make a claim for one or more consequential
adjustments to be made in respect of the amount to be brought into
account as a credit.

(3) 45On a claim under this section an officer of Revenue and Customs
must make such of the consequential adjustments claimed (if any) as
are just and reasonable.

(4) Consequential adjustments may be made—

(a) in respect of any period,

(b) by way of an assessment, the modification of an assessment,
the amendment of a claim, or otherwise, and

(c) 5despite any time limit imposed by or under any enactment.””

24 Omit section 331 (company ceasing to be a party to loan relationship) and
section 332 (repo, stock lending and other transactions).

25 In section 340 (group transfers and transfers of insurance business: transfer
at notional carrying value), in subsection (6)—

(a) 10omit paragraph (a), and

(b) in paragraph (c), for “its carrying value in” substitute “its tax-
adjusted carrying value based on”.

26 (1) Section 342 (issue of new securities on reorganisations: disposal at notional
carrying value) is amended as follows.

(2) 15In subsection (3), for “its carrying value in” substitute “its tax-adjusted
carrying value based on”.

(3) In subsection (4), omit the definition of “carrying value”.

27 Omit section 347 (disapplication of Chapter 4 of Part 5 where transferor
party to avoidance) (which is superseded by the amendment made by
20paragraph 51).

28 (1) Section 349 (application of amortised cost basis to connected companies
relationships) is amended as follows.

(2) After subsection (2) insert—

“(2A) Where—

(a) 25a company has a hedging relationship between a relevant
contract (“the hedging instrument”) and the asset or liability
representing the loan relationship, and

(b) the loan relationship is dealt with in the company’s accounts
on the basis of fair value accounting,

30it is to be assumed in applying an amortised cost basis of accounting
for the purpose of subsection (2) that the hedging instrument has
where possible been designated for accounting purposes as a fair
value hedge of the loan relationship.””

(3) Omit subsections (3) and (4).

29 35Omit section 350 (companies beginning to be connected) and section 351
(companies ceasing to be connected).

30 In section 352 (disregard of related transactions), after subsection (3) insert—

“(3A) Subsections (2) and (3) do not affect the credits or debits to be
brought into account for the purposes of this Part in respect of
40changes in the fair value of the asset that are attributable to changes
in the corresponding market rate.

(3B) Subsection (3A) is subject to section 354 (exclusion of debits for
impaired or released connected companies debts).

(3C) In relation to a debt, “the corresponding market rate” at any time is
the lowest rate at which a company of good financial standing might
at that time expect to be able to borrow money at arm’s length in the
currency applicable to the debt, for repayment at the same time as
5the debt and otherwise on similar terms.””

31 After section 352 insert—

352A   Exclusion of credits on reversal of disregarded loss

(1) If as a result of section 352 the debits brought into account by a
company in respect of a loan relationship are reduced, no credit is to
10be brought into account for the purposes of this Part to the extent that
it represents the reversal of so much of the loss as was not brought
into account as a debit.

(2) Nothing in this section affects the credits to be brought into account
for the purposes of this Part in respect of exchange gains or losses
15resulting from a debt.””

32 In section 354 (exclusion of debits for impaired or released connected
companies debts), after subsection (2) insert—

“(2A) Where the carrying value of an asset representing the creditor
relationship has at any time been adjusted as a result of the asset
20being the hedged item under a designated fair value hedge, the rule
in subsection (1) does not prevent a credit or debit being brought into
account for the purposes of this Part in respect of any reversal of that
adjustment.””

33 (1) Section 358 (exclusion of credits on release of connected companies debts:
25general) is amended as follows.

(2) For subsection (4) substitute—

“(4) For the purposes of this section “relevant rights” means rights of a
company (“C”) that—

(a) were acquired by C, before the day on which F(No2)A 2015
30was passed, in circumstances that, but for the application of
the old corporate rescue exception or the old debt-for-debt
exception, would have resulted in a deemed release under
section 361(3), or

(b) were acquired by another company before that day in such
35circumstances and transferred to C by way of an assignment
or assignments.

(4A) In subsection (4)(a)—

(a) “the old corporate rescue exception” means the exception in
section 361A (as it had effect before F(No2)A 2015);

(b) 40“the old debt-for-debt exception” means the exception in
section 361B (as it had effect before that Act).””

(3) After subsection (6) insert—

“(7) Where the carrying value of a liability representing the debtor
relationship has at any time been adjusted as a result of the liability
45being the hedged item under a designated fair value hedge, this
section does not prevent a credit or debit being brought into account

for the purposes of this Part in respect of any reversal of that
adjustment.

(8) Nothing in this section affects the credits or debits to be brought into
account for the purposes of this Part in respect of exchange gains or
5losses arising from a debt.””

34 (1) Section 359 (exclusion of credits on release of connected companies debts
during creditor’s insolvency) is amended as follows.

(2) In subsection (1)(d), for “the condition in question” substitute “any of those
conditions”.

(3) 10After subsection (2) insert—

“(3) Where the carrying value of a liability representing the debtor
relationship has at any time been adjusted as a result of the liability
being the hedged item under a designated fair value hedge, this
section does not prevent a credit being brought into account for the
15purposes of this Part in respect of any reversal of that adjustment.””

35 (1) Section 361 (acquisition of creditor rights by connected company at
undervalue) is amended as follows.

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

“(f) the equity-for-debt exception (see section 361C) does not
20apply.””

(3) Omit subsection (2).

(4) After subsection (6) insert—

“(7) Subsections (3) and (4) are subject to section 361D (corporate rescue:
debt released shortly after acquisition).””

36 25Omit section 361A (the corporate rescue exception) and section 361B (the
debt-for-debt exception).

37 After section 361C insert—

361D   Corporate rescue: debt released shortly after acquisition

(1) This section applies if—

(a) 30the case is one in which section 361 would otherwise apply,

(b) within 60 days after C becomes a party to the loan
relationship as creditor, C or a company connected with C
releases D’s liability to pay an amount under the loan
relationship, and

(c) 35the corporate rescue conditions are met.

(2) If the release is of the whole debt, section 361 does not apply to the
acquisition of the rights by C.

(3) If the release is of part of the debt, the amount that C is treated by
section 361 as having released when it acquired the rights under the
40loan relationship is reduced (but not below nil) by the amount that is
actually released as mentioned in subsection (1)(b).

(4) The corporate rescue conditions are—

(a) that the acquisition by C of its rights under the loan
relationship is an arm’s length transaction,

(b) that immediately before C became a party to the loan
relationship as creditor, it was reasonable to assume that,
5without the release and any arrangements of which the
release forms part, there would be a material risk that at some
time within the next 12 months the company would have
been unable to pay its debts.

(5) For the purposes of subsection (4)(b), a company is unable to pay its
10debts if—

(a) it is unable to pay its debts as they fall due, or

(b) the value of the company’s assets is less than the amount of
its liabilities, taking into account its contingent and
prospective liabilities.””

38 15In section 362 (parties becoming connected where creditor’s rights subject to
impairment adjustment etc), after subsection (5) insert—

“(6) Subsections (2) and (3) are subject to section 362A (corporate rescue:
debt released shortly after connection arises).””

39 After section 362 insert—

362A 20  Corporate rescue: debt released shortly after connection arises

(1) This section applies if—

(a) the case is one in which section 362 would otherwise apply,

(b) within 60 days after C and D become connected, C releases
D’s liability to pay an amount under the loan relationship,
25and

(c) the corporate rescue conditions are met.

(2) If the release is of the whole debt, section 362 does not apply by
reason of C and D becoming connected.

(3) If the release is of part of the debt, the amount that C is treated by
30section 362 as having released when it became connected with D is
reduced (but not below nil) by the amount actually released.

(4) The corporate rescue conditions are—

(a) that C and D became connected as a result of an arm’s length
transaction, and

(b) 35that immediately before C and D became connected it was
reasonable to assume that, without the connection and any
arrangements of which the connection forms part, there
would be a material risk that at some time within the next 12
months D would have been unable to pay its debts.

(5) 40For the purposes of subsection (4)(b), a company is unable to pay its
debts if—

(a) it is unable to pay its debts as they fall due, or

(b) the value of the company’s assets is less than the amount of
its liabilities, taking into account its contingent and
45prospective liabilities.””

40 In section 363 (companies connected for sections 361 to 362), in subsections
(1) and (4) and in the heading, for “to 362” substitute “to 362A”.

41 In section 422 (transfer of loan relationship at notional carrying value), in
subsection (3)—

(a) 5omit paragraph (a) (including the “and” at the end), and

(b) in paragraph (b), for “its carrying value in” substitute “its tax-
adjusted carrying value based on”.

42 (1) Section 424 (reorganisations involving loan relationships) is amended as
follows.

(2) 10In subsection (3), for “its carrying value in” substitute “its tax-adjusted
carrying value based on”.

(3) In subsection (4), omit the definition of “carrying value”.

43 In section 433 (transfer of loan relationship at notional carrying value), in
subsection (3)—

(a) 15omit paragraph (a) and the “and” immediately following it, and

(b) in paragraph (b), for “its carrying value in” substitute “its tax-
adjusted carrying value based on”.

44 (1) Section 435 (reorganisations involving loan relationships) is amended as
follows.

(2) 20In subsection (3), for “its carrying value in” substitute “its tax-adjusted
carrying value based on”.

(3) In subsection (4), omit the definition of “carrying value”.

45 In section 440 (overview of Chapter 15 of Part 5), in subsection (2)—

(a) in paragraph (a)—

(i) 25omit “and tax relief schemes and arrangements”, and

(ii) for “to 443” substitute “and 442”,

(b) omit paragraph (f) (including the “and” at the end), and

(c) at the end of paragraph (g) insert “and

(h) for rules dealing with tax avoidance arrangements,
30see sections 455B to 455D.”.”

46 In section 441 (loan relationships for unallowable purposes), after subsection
(3) insert—

“(3A) If—

(a) a credit brought into account for that period for the purposes
35of this Part by the company would (in the absence of this
section) be reduced, and

(b) the reduction represents an amount which, if it did not
reduce a credit, would be brought into account as a debit in
respect of that relationship,

40subsection (3) applies to the amount of the reduction as if it were an
amount that would (in the absence of this section) be brought into
account as a debit.””

47 In section 442 (meaning of “unallowable purpose”), after subsection (1)

insert—

“(1A) In subsection (1)(b) “related transaction”, in relation to a loan
relationship, includes anything which equates in substance to a
disposal or acquisition of the kind mentioned in section 304(1) (as
5read with section 304(2)).””

48 Omit section 443 (restriction of relief for interest where tax relief schemes
involved) (which is superseded by the amendment made by paragraph 51).

49 In section 450 (meaning of “corresponding debtor relationship”), in
subsection (6), for “328(2) to (7)” substitute “328(3) to (7)”.

50 10Omit section 454 (application of fair value accounting: reset bonds etc) and
section 455 (loan relationships: disposal for consideration not fully
recognised by accounting practice) (which are superseded by the
amendment made by paragraph 51).

51 In Chapter 15 of Part 5, after section 455A insert—

15““Counteracting avoidance arrangements

455B Counteracting effect of avoidance arrangements

(1) Any loan-related tax advantages that would (in the absence of this
section) arise from relevant avoidance arrangements are to be
counteracted by the making of such adjustments as are just and
20reasonable in relation to credits and debits to be brought into account
for the purposes of this Part.

(2) Any adjustments required to be made under this section (whether or
not by an officer of Revenue and Customs) may be made by way of
an assessment, the modification of an assessment, amendment or
25disallowance of a claim, or otherwise.

(3) For the meaning of “relevant avoidance arrangements” and “loan-
related tax advantage”, see section 455C.

455C Interpretation of section 455B

(1) This section applies for the interpretation of section 455B (and this
30section).

(2) “Arrangements” include any agreement, understanding, scheme,
transaction or series of transactions (whether or not legally
enforceable).

(3) Arrangements are “relevant avoidance arrangements” if their main
35purpose, or one of their main purposes, is to enable a company to
obtain a loan-related tax advantage.

(4) But arrangements are not “relevant avoidance arrangements” if the
obtaining of any loan-related tax advantages that would (in the
absence of section 455B) arise from them can reasonably be regarded
40as consistent with any principles on which the provisions of this Part
that are relevant to the arrangements are based (whether expressed
or implied) and the policy objectives of those provisions.

(5) A company obtains a “loan-related tax advantage” if—

(a) it brings into account a debit to which it would not otherwise
be entitled,

(b) it brings into account a debit which exceeds that to which it
would otherwise be entitled,

(c) 5it avoids having to bring a credit into account,

(d) the amount of any credit brought into account by the
company is less than it would otherwise be, or

(e) it brings a debit or credit into account earlier or later than it
otherwise would.

(6) 10In subsection (5), references to bringing a debit or credit into account
are references to bringing a debit or credit into account for the
purposes of this Part.

455D Examples of results that may indicate exclusion not applicable

(1) Each of the following is an example of something which might
15indicate that arrangements whose main purpose, or one of whose
main purposes, is to enable a company to obtain a loan-related tax
advantage are not excluded by section 455C(4) from being “relevant
avoidance arrangements” for the purposes of section 455B—

(a) the elimination or reduction, for purposes of corporation tax,
20of profits of a company arising from any of its loan
relationships, where for economic purposes profits, or
greater profits, arise to the company from that relationship;

(b) the creation or increase, for purposes of corporation tax, of a
loss or expense arising from a loan relationship, where for
25economic purposes no loss or expense, or a smaller loss or
expense, arises from that relationship;

(c) preventing or delaying the recognition as an item of profit or
loss of an amount that would apart from the arrangements be
recognised in the company’s accounts as an item of profit or
30loss or be so recognised earlier;

(d) ensuring that a loan relationship is treated for accounting
purposes in a way in which it would not have been treated in
the absence of some other transaction forming part of the
arrangements;

(e) 35enabling a company to bring into account for the purposes of
this Part a debit in respect of an exchange loss, in
circumstances where a corresponding exchange gain would
not give rise to a credit or would give rise to a credit of a
smaller amount;

(f) 40enabling a company to bring into account for the purposes of
this Part a debit in respect of a fair value loss in circumstances
where a corresponding fair value gain would not give rise to
a credit or would give rise to a credit of a smaller amount;

(g) ensuring that the effect of the provisions of Chapter 4 is to
45produce an overall reduction in the credits brought into
account for the purposes this Part or an overall increase in the
debits brought into account for those purposes;

(h) bringing into account for the purposes of this Part an
impairment loss or release debit in a case where the
50provisions of Chapter 6 would but for the arrangements have
prevented this.