Finance Bill (HC Bill 57)

74 In the italic heading before section 613, for “policy” substitute “basis”.

75 (1) Section 613 (introduction to sections 614 and 615) is amended as follows.

(2) For subsection (1) substitute—

“(1) Sections 614 and 615 (adjustments on change of accounting basis)
5apply if—

(a) a company changes, from one period of account or
accounting period to the next, the basis of accounting on
which credits and debits relating to its derivative contracts or
any of them are calculated for the purposes of this Part,

(b) 10the change of basis—

(i) is made in order to comply with a provision made by
or under this Part requiring those credits and debits to
be determined on a particular basis of accounting, or

(ii) results from a change of the company’s accounting
15policy,

(c) the change of basis is not made in order to comply with
amending legislation not applicable to the previous period,

(d) the old basis accorded with the law or practice applicable in
relation to the period before the change, and

(e) 20the new basis accords with the law and practice applicable to
the period after the change.””

(3) In subsection (2), for “those periods of account” substitute “the periods
mentioned in subsection (1)”.

(4) Omit subsection (3).

76 25For section 614 substitute—

“614 Change of basis of accounting involving change of value

(1) If there is a difference between—

(a) the tax-adjusted carrying value of a derivative contract at the
end of the earlier period, and

(b) 30the tax-adjusted carrying value of that derivative contract at
the beginning of the later period,

a credit or debit (as the case may be) of an amount equal to the
difference must be brought into account for the purposes of this Part
for the later period in the same way as a credit or debit which is
35brought into account in determining the company’s profit or loss for
that period in accordance with generally accepted accounting
practice.

(2) This section does not apply so far as the credit or debit falls to be
brought into account apart from this section.””

77 (1) 40Section 615 (change of accounting policy after ceasing to be party to
derivative contract) is amended as follows.

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

“(b) section 607A (company is not, or has ceased to be, party to
derivative contract) applied to the cessation, and”.”

(3) For subsections (2) and (3) substitute—

“(2) A credit or debit (as the case may be) of an amount equal to the
difference must be brought into account for the purposes of this Part
for the later period in the same way as a credit or debit which is
5brought into account in determining the company’s profit or loss for
that period in accordance with generally accepted accounting
practice.””

(4) In subsection (4), for “Subsections (2) and (3) do” substitute “Subsection (2)
does”.

(5) 10For subsection (5) substitute—

“(5) In this section “the amount outstanding in respect of the derivative
contract” means—

(a) so much of the recognised deferred income or recognised
deferred loss from the derivative contract as has not been
15represented by credits or debits brought into account in
accordance with this Part in respect of the contract, and

(b) any amounts relating to the matters mentioned in section
594A(1) in respect of the derivative contract that have in
accordance with generally accepted accounting practice been
20recognised in the company’s accounts as items of other
comprehensive income and not transferred to become items
of profit or loss.””

(6) After subsection (6) insert—

“(7) In determining what amounts fall within subsection (5)(b) at the
25beginning or end of a 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 periods.

(8) But if the company’s accounts for the period are in accordance with
generally accepted accounting practice drawn up on an assumption
30as to the accounting policy in previous periods which differs from
that mentioned in subsection (7), that different assumption applies in
determining what amounts fall within subsection (5)(b) at the
beginning or end of the period.””

78 In section 622 (contracts ceasing to be derivative contracts), in subsection (4),
35for “the carrying value of the contract in” substitute “the tax-adjusted
carrying value of the contract based on”.

79 In section 625 (group member replacing another as party to derivative
contract), in subsection (6)(b), for “its carrying value in” substitute “its tax-
adjusted carrying value based on”.

80 40Omit section 629 (disapplication of section 625 where transferor party to
avoidance) (which is superseded by the amendment made by paragraph 94).

81 In section 653 (shares issued or deferred as a result of exercise of deemed
option), in subsection (2), for “carrying value” substitute “tax-adjusted
carrying value”.

82 45In section 654 (payment instead of disposal on exercise of deemed option),
in subsection (3), in the definition of “CV”, in paragraphs (a) and (b), for
“carrying value” substitute “tax-adjusted carrying value”.

83 In section 658 (chargeable gain or allowable loss treated as accruing), in
subsection (5)(b), for “carrying value” substitute “tax-adjusted carrying
value”.

84 In section 666 (allowable loss treated as accruing), in subsection (2), in the
5definition of “B”, for “carrying value” substitute “tax-adjusted carrying
value”.

85 In section 671 (meaning of G, L and CV in section 670), in subsection (4), for
“carrying value”, in each place, substitute “tax-adjusted carrying value”.

86 In section 673 (meaning of G, L and CV in section 672), in subsection (4), for
10“carrying value”, in each place, substitute “tax-adjusted carrying value”.

87 In section 675 (transfer of derivative contract at notional carrying value), in
subsection (3), for “its carrying value in” substitute “its tax-adjusted carrying
value based on”.

88 In section 684 (transfer of derivative contract at notional carrying value), in
15subsection (3), for “its carrying value in” substitute “its tax-adjusted carrying
value based on”.

89 In section 689 (overview of Chapter 11 of Part 7), in subsection (2)—

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

(b) at the end of paragraph (e) insert “and

(f) 20for rules dealing with tax avoidance
arrangements, see sections 698B to 698D.””

90 (1) Section 690 (derivative contracts for unallowable purposes) is amended as
follows.

(2) After subsection (3) insert—

“(3A) 25If—

(a) a credit brought into account for that period for the purposes
of 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
30reduce a credit, would be brought into account as a debit in
respect of that contract,

subsection (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.””

(3) 35In subsection (6), omit the words from “which are” onwards.

91 In section 691 (meaning of “unallowable purpose”), after subsection (1)
insert—

“(1A) In subsection (1)(b) “related transaction”, in relation to a derivative
contract, includes anything which equates in substance to a disposal
40or acquisition of the kind mentioned in section 596(1) (as read with
section 596(2)).””

92 In section 692 (allowance of accumulated net losses), in Step 3 in subsection
(5)—

(a) for “the amount” substitute “so much”, and

(b) at the end insert “as are referable to the unallowable purpose
mentioned in subsection (1)(a) on a just and reasonable
apportionment”.

93 Omit section 698 (derivative contracts: disposals for consideration not fully
5recognised by accounting practice) (which is superseded by the amendment
made by paragraph 94).

94 In Chapter 11 of Part 7 of CTA 2009, after section 698A insert—

““Counteracting avoidance arrangements

698B Counteracting effect of avoidance arrangements

(1) 10Any derivative-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
reasonable in relation to credits and debits to be brought into account
for the purposes of this Part.

(2) 15Any 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
disallowance of a claim, or otherwise.

(3) For the meaning of “relevant avoidance arrangements” and
20“derivative-related tax advantage”, see section 698C.

698C Interpretation of section 698B

(1) This section applies for the interpretation of section 698B (and this
section).

(2) “Arrangements” include any agreement, understanding, scheme,
25transaction or series of transactions (whether or not legally
enforceable).

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

(4) 30But arrangements are not “relevant avoidance arrangements” if the
obtaining of any derivative-related tax advantages that would (in the
absence of section 698B) arise from them can reasonably be regarded
as consistent with any principles on which the provisions of this Part
that are relevant to the arrangements are based (whether expressed
35or implied) and the policy objectives of those provisions.

(5) A company obtains a “derivative-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
40would otherwise be entitled,

(c) it 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
45otherwise would.

(6) In 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.

698D Examples of results that may indicate exclusion not applicable

(1) 5Each of the following is an example of something which might
indicate that arrangements whose main purpose, or one of whose
main purposes, is to enable a company to obtain a derivative-related
tax advantage are not excluded by section 698C(4) from being
“relevant avoidance arrangements” for the purposes of section
10698B—

(a) the elimination or reduction, for purposes of corporation tax,
of profits of a company arising from any of its derivative
contracts, where for economic purposes profits, or greater
profits, arise to the company from that contract;

(b) 15the creation or increase, for purposes of corporation tax, of a
loss or expense arising from a derivative contract, where for
economic purposes no loss or expense, or a smaller loss or
expense, arises from that contract;

(c) preventing or delaying the recognition as an item of profit or
20loss of an amount that would apart from the arrangements be
recognised in the company’s accounts as an item of profit or
loss or be so recognised earlier;

(d) ensuring that a derivative contract is treated for accounting
purposes in a way in which it would not have been treated in
25the absence of some other transaction forming part of the
arrangements;

(e) enabling a company to bring into account 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
30rise to a credit of a smaller amount;

(f) enabling a company to bring into account 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.

(2) 35But in each case the result concerned is only capable of indicating
that section 698C(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) In subsection (1)(f) references to a fair value gain or a fair value loss
40are references respectively to—

(a) a profit to be brought into account in relation to a derivative
contract where fair value accounting is used for the period in
question, or

(b) a loss to be brought into account in relation to a derivative
45contract where fair value accounting is used for the period in
question.

(4) “Arrangements” and “derivative-related tax advantage” have the
same meaning as in section 698C.””

95 For section 702 substitute—

“702 “Tax-adjusted carrying value”

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

(2) “Tax-adjusted carrying value”, in relation to a contract, means the
5carrying value of the contract recognised for accounting purposes,
except as provided by subsection (7).

(3) For the purposes of this section the “carrying value” of the contract
includes amounts recognised for accounting purposes in relation to
the contract in respect of—

(a) 10accrued amounts,

(b) amounts paid or received in advance, or

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

(4) In determining the tax-adjusted carrying value of a contract in a
15period 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.

(5) But if the company’s accounts for the period are in accordance with
generally accepted accounting practice drawn up on an assumption
20as to the accounting policy in previous periods of account which
differs from that mentioned in subsection (4), that different
assumption applies in determining the tax-adjusted carrying value
of the contract in the period.

(6) In determining the tax-adjusted carrying value of a contract at a time
25other 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.

(7) In determining the profits and losses to be recognised in determining
the tax-adjusted carrying value of the contract, the provisions
30specified in subsection (8) apply as they apply for the purposes of
determining the credits and debits to be brought into account in
accordance with this Part.

(8) Those provisions are—

(a) section 584 (hybrid derivatives with embedded derivatives),

(b) 35section 585 (loan relationships with embedded derivatives),

(c) section 586 (other contracts with embedded derivatives),

(d) section 597 (amounts recognised in determining profit or
loss),

(e) sections 599A and 599B (amounts not fully recognised for
40accounting purposes),

(f) section 604A (amounts recognised in other comprehensive
income and not transferred to profit and loss),

(g) Chapter 5 (transactions within groups),

(h) Chapter 9 (European cross-border transfers of business), and

(i) 45Chapter 10 (European cross-border mergers).

(9) In this section “impairment loss” means a debit in respect of the
impairment of a financial asset and “impairment” includes
uncollectability.””

96 In section 705 (expressions relating to exchange gains and losses), in
5subsection (3), omit “in a case where fair value accounting is used by the
company”.

97 In section 710 (other definitions)—

(a) before the definition of “bank” insert—

• “““accounting policy”, in relation to a company, means
  10the principles, bases, conventions, rules and practices
  that the company applies in preparing and presenting
  its financial statements,”,”

(b) for the definition of “fair value accounting” substitute—

• “““fair value accounting” means a basis of accounting
  15under which—

  (a)

  assets and liabilities are measured in the
  company’s balance sheet at their fair value,
  and

  (b)

  changes in the fair value of assets and
  20liabilities are recognised as items of profit or
  loss,”, and”

(c) omit the definition of “statement of comprehensive income”.

Part 3 Amendments of TCGA 1992 relating to loan relationships

98 (1) 25Section 151E of TCGA 1992 (exchange gains and losses from loan
relationships: regulations) is amended as follows.

(2) In subsection (1)—

(a) for “amounts” substitute “exchange gains or losses (as defined by
section 475 of CTA 2009)”, and

(b) 30for “or (4) of that Act” substitute “of that Act or because of
regulations under section 328(4) of that Act”.

(3) After that subsection insert—

“(1A) The regulations may make provision as to the way in which,
including the currency by reference to which, the amounts to be
35brought into account are to be calculated.””

Part 4 Consequential amendments

99 (1) Schedule 4 to CTA 2009 (index of defined expressions) is amended as
follows.

(2) 40At the appropriate place in each case insert—

(3) 10In the entry for “fair value (in Parts 5 and 6)”, for “313(6)” substitute “476(1)”.

(4) Omit the following—

(a) the entry for “carrying value (in Part 7)”;

(b) the entries for “statement of comprehensive income (in Parts 5 and
6)” and “statement of comprehensive income (in Part 7)”;

(c) 15the entries for “the Part 5 one-way exchange effect provisions” and
“the Part 7 one-way exchange effect provisions”.

100 In Schedule 21 to FA 2009, omit paragraphs 1 to 3, 7 and 9.

Part 5 Repeal of uncommenced repeal provisions

101 (1) 20Part 21 of CTA 2009 (other general provisions) is amended as follows.

(2) In Schedule 2 (transitionals and savings), omit paragraphs 71 and 99 (which
contain prospective repeals relating to loan relationships or derivative
contracts and have never been brought into force).

(3) In section 1325 (transitional provision and savings), in subsection (2), omit
25the words from “except paragraphs 71 and 99” onwards.

(4) In section 1329 (commencement), omit subsections (3) and (4).

(5) In Schedule 3 (repeals and revocations), omit Part 2 (prospective repeals).

Part 6 Commencement and transitional provisions

30Introductory

102 This Part of this Schedule contains provision about the coming into force of
the amendments in Parts 1 to 5 of this Schedule.

Commencement: the general rule

103 The general rule is that the amendments made by Parts 1 to 4 of this
Schedule have effect in relation to accounting periods beginning on or after
1 January 2016.

104 5This general rule—

(a) does not apply in relation to the provisions dealt with by paragraphs
106 to 113, and

(b) has effect subject to the transitional provisions in paragraphs 114 to
128.

105 10Part 5 of this Schedule comes into force on the day on which this Act is
passed.

Commencement: sections 321, 349 and 605 of CTA 2009

106 (1) Paragraphs 15 and 28 have effect in relation to loan relationships entered
into by a company in an accounting period beginning on or after 1 January
152016.

(2) Paragraph 67 has effect in relation to derivative contracts entered into by a
company in an accounting period beginning on or after 1 January 2016.

(3) In relation to loan relationships entered into by a company in an accounting
period beginning before 1 January 2016, sub-paragraphs (4) to (6) apply in
20relation to accounting periods beginning on or after that date.

(4) The reference in section 321(1)(b) of CTA 2009 to recognition in any of the
statements mentioned in section 308(1) of that Act is to be read in relation to
the company as a reference to recognition in the company’s accounts for the
period as an item of profit or loss or as an item of other comprehensive
25income.

(5) But section 321 does not bring into account for the purposes of Part 5 of CTA
2009 any exchange gain or loss of the company so far as it is recognised in
the company’s statement of total recognised gains and losses, statement of
recognised income and expense, statement of changes in equity or statement
30of income and retained earnings.

(6) The reference in section 349 of CTA 2009 to an amortised cost basis of
accounting is to be read in relation to the company without regard to the
amendment of section 313(4) of that Act made by paragraph 7(5).

(7) In relation to derivative contracts entered into by a company in an
35accounting period beginning before 1 January 2016, sub-paragraphs (8) and
(9) apply in relation to accounting periods beginning on or after that date.

(8) The reference in section 605(1)(b) of CTA 2009 to recognition in any of the
statements mentioned in section 597(1) of that Act is to be read in relation to
the company as a reference to recognition in the company’s accounts for the
40period as an item of profit or loss or as an item of other comprehensive
income.

(9) But section 605 does not bring into account for the purposes of Part 7 of CTA
2009 any exchange gain or loss of the company so far as it is recognised in
the company’s statement of total recognised gains and losses, statement of

recognised income and expense, statement of changes in equity or statement
of income and retained earnings.

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

5Commencement: insolvency, corporate rescue etc

107 Paragraphs 16 to 18 and 33(2) have effect in relation to the release,
modification or replacement of a debtor relationship of a company on or
after the day on which this Act is passed.

108 Paragraphs 35 to 37 have effect where the company acquiring the rights
10under the loan relationship as creditor does so on or after the day on which
this Act is passed.

109 Paragraphs 38 to 40 have effect where the companies become connected
with each other on or after the day on which this Act is passed.

Commencement: anti-avoidance provisions etc

110 15The following provisions have effect in relation to arrangements entered
into on or after the day on which this Act is passed—

• paragraph 20, so far as relating to the repeal of section 328(4A) of CTA
  2009,

• paragraph 21,

• 20paragraph 27,

• paragraph 45(a) and (c),

• paragraph 51,

• paragraph 55(d),

• paragraph 68, so far as relating to the repeal of section 606(4C) to (4E)
  25of CTA 2009,

• paragraph 69,

• paragraph 80,

• paragraph 89(b),

• paragraph 94, and

• 30paragraph 99(4)(c).

111 The following provisions—

• paragraph 28, so far as relating to the repeal of section 349(3) of CTA
  2009, and

• paragraph 50, so far as relating to the repeal of section 454 of CTA 2009,

35have effect where conditions A and B in section 454 of CTA 2009 were first
met in relation to the asset on or after the day on which this Act is passed.

112 The following provisions—

• paragraph 45(b),

• paragraph 50, so far as relating to the repeal of section 455 of CTA 2009,

• 40paragraph 89(a) and

• paragraph 93,

have effect in relation to disposals on or after the day on which this Act is
passed.