Finance Bill (HC Bill 57)

(2) But in each case the result concerned is only capable of indicating
that section 455C(4) is not available if it is reasonable to assume that
such a result was not the anticipated result when the provisions of
this Part that are relevant to the arrangements were enacted.

(3) 5In subsection (1)(f) references to a fair value gain or a fair value loss,
in relation to a company, are references respectively to—

(a) a profit to be brought into account in relation to an asset or
liability representing a loan relationship where fair value
accounting is used for the period in question, or

(b) 10a loss to be brought into account in relation to such an asset
or liability where fair value accounting is used for the period
in question.

(4) “Arrangements” and “loan-related tax advantage” have the same
meaning as in section 455C.””

52 15After section 465A insert—

““Tax-adjusted carrying value

465B “Tax-adjusted carrying value”

(1) This section applies for the purposes of this Part.

(2) “Tax-adjusted carrying value”, in relation to the asset or liability
20representing a loan relationship, means the carrying value of the
asset or liability recognised for accounting purposes, except as
provided by subsection (8).

(3) For the purposes of this section the “carrying value” of the asset or
liability includes amounts recognised for accounting purposes in
25relation to the loan relationship in respect of—

(a) accrued amounts,

(b) amounts paid or received in advance, or

(c) impairment losses (including provisions for bad or doubtful
debts).

(4) 30For the meaning of “impairment loss” see section 476(1).

(5) In determining the tax-adjusted carrying value of an asset or liability
in a period of account of a company, it is to be assumed that the
accounting policy applied in drawing up the company’s accounts for
the period was also applied in previous periods of account.

(6) 35But if the company’s accounts for the period are in accordance with
generally accepted accounting practice drawn up on an assumption
as to the accounting policy in previous periods of account which
differs from that mentioned in subsection (5), that different
assumption applies in determining the tax-adjusted carrying value
40of the asset or liability in the period.

(7) In determining the tax-adjusted carrying value of an asset or liability
at a time other than the end (or beginning) of a period of account of
a company, it is to be assumed that a period of account of the
company had ended at the time in question.

(8) In determining the tax-adjusted carrying value of the asset or
liability, the provisions specified in subsection (9) apply as they
apply for the purposes of determining the credits and debits to be
brought into account under this Part.

(9) 5Those provisions are—

(a) section 308(1A) (amounts recognised in other comprehensive
income and transferred to profit and loss),

(b) sections 311 and 312 (amounts not fully recognised for
accounting purposes),

(c) 10section 320A (amounts recognised in other comprehensive
income and not transferred to profit and loss),

(d) section 323A (substantial modification: cases where credits
not required to be brought into account),

(e) section 324 (restriction on debits resulting from revaluation),

(f) 15section 325 (restriction on credits resulting from reversal of
disallowed debits),

(g) sections 333 and 334 (company ceasing to be UK resident and
non-UK company ceasing to hold loan relationship for UK
permanent establishment),

(h) 20Chapter 4 (continuity of treatment on transfers within groups
or organisations),

(i) section 349(2) (application of amortised cost basis of
accounting to connected companies relationships),

(j) section 352 (disregard of related transactions),

(k) 25section 352A (exclusion of credits on reversal of disregarded
loss),

(l) section 354 (exclusion of debits for impaired or released
connected companies debts),

(m) section 360 (exclusion of credits on reversal of impairments of
30connected companies debts),

(n) sections 361 to 363 (deemed debt releases on impaired debts
becoming held by connected company),

(o) Chapter 8 (connected parties relationships: late interest),

(p) section 382 (company partners using fair value accounting),

(q) 35sections 399 to 400C (treatment of index-linked gilt-edged
securities),

(r) section 404 (restriction on deductions etc relating to FOTRA
securities),

(s) sections 406 to 412 (deeply discounted securities and close
40companies),

(t) section 415(2) (loan relationships with embedded
derivatives),

(u) Chapter 13 (European cross-border transfers of business),
and

(v) 45Chapter 14 (European cross-border mergers).””

53 In section 475 (meaning of expressions relating to exchange gains and
losses), in subsection (3), omit “in a case where fair value accounting is used
by the company”.

54 After section 475 insert—

““Meaning of “hedging relationship”

475A   “Hedging relationship”

(1) This section applies for the purposes of this Part.

(2) 5A company has a “hedging relationship” between a relevant contract
(“the hedging instrument”) and an asset or liability (“the hedged
item”) so far as condition A or B is met.

(3) Condition A is that the hedging instrument and the hedged item are
designated as a hedge by the company.

(4) 10Condition B is that—

(a) the hedging instrument is intended to act as a hedge of the
exposure to changes in fair value of the hedged item which is
attributable to a particular risk and could affect the profit or
loss of the company, and

(b) 15the hedged item is an asset or liability recognised for
accounting purposes or is an identified portion of such an
asset or liability.

(5) For the purposes of subsections (2) and (4), the liabilities of a
company include its own share capital.””

55 20In section 476 (other definitions), in subsection (1)—

(a) before the definition of “alternative finance arrangements” insert—

• “““accounting policy”, in relation to a company, means
  the principles, bases, conventions, rules and practices
  that the company applies in preparing and presenting
  25its financial statements,”,”

(b) after the definition of “equity instrument” insert—

• “““fair value” has the meaning it has for accounting
  purposes,”,”

(c) after the definition of “release debit” insert—

• 30“““relevant contract” has the same meaning as in Part 7
  (see section 577),”,”

(d) in the definition of “tax advantage”, for “has” substitute “, except in
the expression “loan-related tax advantage”, has”.

56 Part 6 of CTA 2009 (relationships treated as loan relationships etc) is
35amended as follows.

57 In section 521F (shares becoming or ceasing to be shares to which section
521B applies)—

(a) in subsection (3), for “its carrying value in” substitute “its tax-
adjusted carrying value based on”, and

(b) 40omit subsection (4).

58 In section 540 (manufactured interest treated as interest under loan
relationship), in subsection (3), omit “, including, in particular, section
307(3)”.

Part 2 Derivative contracts: amendments of Part 7 of CTA 2009

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

60 In section 594 (overview of Chapter 3 of Part 7), in subsection (2)—

(a) 5before paragraph (a) insert—

“(za) makes provision about the matters in respect of which
amounts are to be brought into account (see section
594A),”, and”

(b) for paragraph (g) substitute—

“(g) 10makes provision about cases where amounts are
recognised even though companies are not, or have
ceased to be, parties to derivative contracts (see
section 607A),

(ga) makes provision about companies moving abroad
15(see sections 609 and 610), and”.”

61 After section 594 insert—

““Matters in respect of which amounts are to be brought into account

594A Matters in respect of which amounts are to be brought into account

(1) The matters in respect of which amounts are to be brought into
20account for the purposes of this Part in respect of a company’s
derivative contracts are—

(a) profits and losses of the company which arise to it from its
derivative contracts and related transactions (excluding
expenses), and

(b) 25expenses incurred by the company under or for the purposes
of those contracts and transactions.

(2) Expenses are only treated as incurred as mentioned in subsection
(1)(b) if they are incurred directly—

(a) in bringing any of the derivative contracts into existence,

(b) 30in entering into or giving effect to any of the related
transactions,

(c) in making payments under any of those contracts or as a
result of any of those transactions, or

(d) in taking steps to secure the receipt of payments under any of
35those contracts or in accordance with any of those
transactions.

(3) For the treatment of pre-contract or abortive expenses, see section
607.

(4) In subsection (1) “profits and losses” include profits and losses of a
40capital nature.

(5) For the meaning of “related transaction”, see section 596.””

62 (1) Section 595 (general principles about the bringing into account of credits and
debits) is amended as follows.

(2) In subsection (2)—

(a) after “this Part” insert “in respect of the matters mentioned in section
594A(1)”, and

(b) omit “(but this is subject to subsections (3) and (4))”.

(3) 5After subsection (2) insert—

“(2A) Subsections (2B) and (2C) apply if an accounting period of a
company does not coincide with one or more of its periods of
account.

(2B) The amounts referred to in subsection (2) are to be determined by
10apportionment in accordance with section 1172 of CTA 2010 (time
basis).

(2C) But if it appears that apportionment in accordance with that section
would work unreasonably or unjustly for an accounting period,
subsection (2) is to be read as referring to amounts that would have
15been recognised in determining the company’s profit or loss for that
period in accordance with generally accepted accounting practice if
accounts had been drawn up for that period.””

(4) Omit subsections (3) to (6) and (8).

63 (1) Section 597 (amounts recognised in determining a company’s profit or loss)
20is amended as follows.

(2) In subsection (1), for the words from “recognised”, in the second place,
onwards substitute “that is recognised in the company’s accounts for the
period as an item of profit or loss”.

(3) After subsection (1) insert—

“(1A) 25The reference in subsection (1) to an amount recognised in the
company’s accounts for the period as an item of profit or loss
includes a reference to an amount that—

(a) was previously recognised as an item of other comprehensive
income, and

(b) 30is transferred to become an item of profit or loss in
determining the company’s profit or loss for the period.

(1B) In subsections (1) and (1A) “item of profit or loss” and “item of other
comprehensive income” each has the meaning that it has for
accounting purposes.””

(4) 35Omit subsections (2) and (3).

64 In section 599B (determination of credits and debits where amounts not fully
recognised), in subsection (4)(b), for “carrying value” substitute “tax-
adjusted carrying value”.

65 (1) Section 604 (credits and debits treated as relating to capital expenditure) is
40amended as follows.

(2) For subsections (1) to (3) substitute—

“(1) This section applies if—

(a) an amount for an accounting period in respect of a
company’s derivative contract relates to any of the matters in
section 594A(1),

(b) generally accepted accounting practice allows the amount to
5be treated in the company’s accounts as an amount
recognised in determining the carrying value of an asset or
liability, and

(c) any profit or loss for corporation tax purposes in relation to
that asset or liability will not fall to be calculated in
10accordance with generally accepted accounting practice.

(2) Despite that treatment, the amount must be brought into account as
a credit or debit in accordance with this Part, for the accounting
period in which it is recognised, in the same way as an amount which
is brought into account as a credit or debit in determining the
15company’s profit or loss for that period in accordance with generally
accepted accounting practice.

(3) But subsection (2) does not apply to an amount which relates to an
intangible fixed asset to which an election under section 730 (writing
down at fixed rate: election for fixed-rate basis) applies.””

(3) 20Omit subsection (4).

(4) For subsection (5) substitute—

“(5) If an amount is brought into account as mentioned in subsection (2)
as a debit, no debit may be brought into account in accordance with
this Part in respect of—

(a) 25the writing down of so much of the value of the asset or
liability as is attributable to that debit, or

(b) so much of any amortisation or depreciation representing a
writing off of that value as is attributable to that debit.””

66 After section 604 insert—

“604A 30 Amounts recognised in other comprehensive income and not
transferred to profit or loss

(1) This section applies if—

(a) in a period of account a derivative contract of a company
ceases in accordance with generally accepted accounting
35practice to be recognised in the company’s accounts,

(b) amounts relating to the matters mentioned in section 594A(1)
in respect of that derivative contract have in accordance with
generally accepted accounting practice been recognised in
the company’s accounts as items of other comprehensive
40income and have not subsequently been transferred to
become items of profit or loss, and

(c) condition A or B is met.

(2) Condition A is that, at the time when the derivative contract ceases
to be recognised, it is not expected that the amounts mentioned in
45subsection (1)(b) will in future be transferred to become items of
profit or loss.

(3) Condition B is that, at any later time, it is no longer expected that the
amounts mentioned in subsection (1)(b) will in future be transferred
to become items of profit or loss.

(4) The amounts mentioned in subsection (1)(b)—

(a) 5must be brought into account for the purposes of this Part as
credits or debits for the period of account in which the time
mentioned in subsection (2) or (3) falls, in the same way as a
credit or debit which is brought into account in determining
the company’s profit or loss for that period in accordance
10with generally accepted accounting practice, and

(b) must not be brought into account for a later period of account
even if they are subsequently transferred to become items of
profit or loss for the later period.

(5) This section applies in a case where part of a derivative contract of a
15company ceases to be recognised in the company’s accounts as it
applies in a case where the whole of a derivative contract ceases to be
recognised, but as if the reference in subsection (1)(b) to amounts in
respect of a derivative contract were a reference to so much of those
amounts as are attributable to that part of the derivative contract.

(6) 20In determining what amounts fall within subsection (1)(b) at any
time in an accounting period, it is to be assumed that the accounting
policy applied in drawing up the company’s accounts for the period
was also applied in previous accounting periods.

(7) But if the company’s accounts for the period are in accordance with
25generally accepted accounting practice drawn up on an assumption
as to the accounting policy in previous accounting periods which
differs from that mentioned in subsection (6), that different
assumption applies in determining what amounts fall within
subsection (1)(b) at the time in question.

(8) 30In this section “item of profit or loss” and “item of other
comprehensive income” each has the meaning that it has for
accounting purposes.””

67 Omit section 605 (credits and debits recognised in equity).

68 (1) Section 606 (exchange gains and losses) is amended as follows.

(2) 35In subsection (1), for “section 595(3)” substitute “section 594A(1)”.

(3) Omit subsections (2) and (2A).

(4) For subsection (3) substitute—

“(3) But subsection (1) does not apply to an exchange gain or loss of a
company so far as it—

(a) 40arises as a result of the translation of the assets, liabilities,
income and expenses of all or part of the company’s business
from the functional currency of the business, or that part of
the business, into another currency, and

(b) has been recognised as an item of other comprehensive
45income.

(3A) In subsection (3)—

(a) the reference to the functional currency of a business or part
of a business is a reference to the currency of the primary
economic environment in which the business or part
operates, and

(b) 5“assets, liabilities, income and expenses” and “item of other
comprehensive income” each has the meaning that it has for
accounting 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
10(within the meaning of section 17 of CTA 2010) which would not
have arisen but for a change in the company’s functional currency
(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) 15a period of account of the company ending in the 12 months
immediately preceding that period.

(3C) But 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
20to the company.””

(5) For subsection (4) substitute—

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

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

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

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

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

(7) 40In subsection (6)—

(a) for “The reference in subsection (5)” substitute “References in
subsection (4)”, and

(b) for “is a reference” substitute “are references”.

69 Omit sections 606A to 606H (derivative contracts: arrangements that have
45“one-way exchange effect”) (which are superseded by the amendments
made by paragraph 94).

70 (1) Section 607 (pre-contract or abortive expenses) is amended as follows.

(2) In subsection (1)(c), for “section 595(3)(b)” substitute “section 594A(1)(b)”.

(3) In subsection (2), for “section 595(3)” substitute “section 595(2)”.

71 After section 607 insert—

607A   Company is not, or has ceased to be, party to derivative contract

(1) 5This section applies if—

(a) amounts in respect of a qualifying contract are recognised 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
10contract,

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

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

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

(a) a derivative contract, or

(b) a contract that would be a derivative contract if references in
section 576(1) to a company were references to any person.

(3) 20Condition A is that—

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

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

(c) 25any amounts in respect of the contract 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
30reward relating to the qualifying contract without a corresponding
transfer of rights or obligations under the contract.

(5) Condition C is that the amounts recognised as mentioned in
subsection (1)(a) are recognised as a result of a related transaction in
relation to a qualifying contract to which the company was, but has
35ceased 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
contract or related transaction but has not yet done so, and

(b) 40the amounts are not expenses to which section 607 applies.

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

(8) 45The amounts that must be brought into account are those amounts in
respect of the qualifying contract that are recognised in the

company’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 607B and 607C.

(10) In this section—

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

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

• “related transaction”, in relation to a qualifying contract, is to be
  10read as if the references in section 596(1) and (2) to a
  derivative contract were to a qualifying contract.

607B 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 607A any amount which—

(a) 15is brought into account as a debit for those purposes by
another 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) 20is allowable as a deduction by a person for the purposes of
income tax.

607C Avoidance of double charge

(1) This section applies if at any time a company (“the relevant
company”) is required by section 607A to bring into account as a
25credit for the purposes of this Part an amount—

(a) which 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
30Part 9A of TIOPA 2010 (controlled foreign companies), or

(c) on 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 brought into
35account as a credit.

(3) On 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) 40in respect of any period,

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

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

72 Omit section 608 (company ceasing to be party to derivative contract).

73 45In section 612 (overview of Chapter 4 of Part 7), in subsection (2)(a), for
“policy” substitute “basis”.