Finance (No. 2) Bill (HL Bill 156)

section 72 of TIOPA 2010 (amounts of unrelieved foreign
tax),

(f) on a claim under section 77 of that Act, credit for the whole
or any part of the excess is allowed against corporation tax
5in respect of an accounting period before the middle
period (“the earlier period”) and,

(g) a repayment falls to be made of corporation tax paid for the
earlier period or of income tax in respect of a payment
received by the company in that period.

(2) 10So much of the repayment mentioned in sub-paragraph (1)(g) as
falls to be made as a result of the claim under section 77 does not
carry repayment interest.

(3) But sub-paragraph (2) does not apply (and, accordingly, the
amount mentioned in that sub-paragraph carries repayment
15interest) after the expiry of 9 months from the end of the later
period.””

FA 2012

166 FA 2012 is amended as follows.

167 In section 78 (meaning of expressions used in section 76), in subsection (5),
20for the words from “means” to the end substitute “means any of the
following—

“(a) a BLAGAB trade loss of the company for the accounting
period in question, so far as relief is given for the loss under—

(i) section 37 of CTA 2010 (relief for trade losses against
25total income), as applied by section 123, or

(ii) Chapter 4 of Part 5 of that Act (group relief), as
applied by section 125;

(b) an amount deducted under section 124B (relief for excess
carried forward post-1 April BLAGAB trade losses) from the
30company’s total profits of the accounting period in question;

(c) an amount of a BLAGAB trade loss of the company relieved
under Chapter 3 of Part 5A of CTA 2010 (group relief for
carried-forward losses) if the surrender period (see section
188BB(8)) to which the claim relates is the accounting period
35in question.””

168 In section 93 (minimum profits test), in subsection (2), in the words after
paragraph (b), for “and 124” substitute “, 124, 124A and 124C”.

169 In section 104 (meaning of “the adjusted amount”)—

(a) in subsection (3), after “124” insert “, 124A or 124C”;

(b) 40in subsection (4), for “that section” substitute “any of those sections”;

(c) in subsection (5)(a), for “or no relief is available under that section,”
substitute “, 124A or 124C or no relief is available under those
sections,”.

170 In section 125 (group relief), at the end insert—

“(4) 45For provision about the application of Part 5A of CTA 2010 (group
relief for carried-forward losses) in relation to BLAGAB trade losses
see subsections (3) to (5) of section 188BB of that Act.””

171 (1) Section 126 (restrictions in respect of non-trading deficit) is amended as
follows.

(2) After subsection (1) insert—

“(1A) A loss falls within subsection (1B) so far as it—

(a) 5would (apart from that subsection) be available for relief
under section 124B (excess carried forward post-1 April 2017
losses: relief against total profits), and

(b) arose in an accounting period for which the insurance
company has a relevant non-trading deficit.

(1B) 10A loss (or amount of a loss) falling within this subsection is available
for relief under section 124B only so far as it exceeds the amount of
that relevant non-trading deficit.

(1C) A loss falls within subsection (1D) so far as it—

(a) is an amount which a company (“the surrendering
15company“) may surrender by virtue of section 188BB(4)
(surrender of carried-forward BLAGAB trade losses), and

(b) arose in an accounting period for which the surrendering
company has a relevant non-trading deficit.

(1D) A loss (or amount of a loss) falling within this subsection is available
20for relief under Chapter 3 of Part 5A of CTA 2010 (claims for group
relief) only so far as it exceeds the amount of that relevant non-
trading deficit.

(1E) For the purposes of subsections (1A) and (1C) it is to be assumed
(where relevant) that in previous accounting periods losses which
25arose earlier have been utilised before losses which arose later.””

(3) In subsection (2)—

(a) for “The reference” substitute “In this section references”;

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

172 In section 127 (no relief against policyholders’ share of I-E profit), in
30subsection (3)—

(a) before paragraph (a) insert—

“(za) relief under section 124B (relief of excess carried-
forward BLAGAB trade losses against total profits),”;”

(b) after paragraph (c) insert—

“(ca) 35relief under Chapter 3 of Part 5A of CTA 2010 (group
relief for carried-forward losses),”.”

Part 11 Commencement etc

173 (1) The amendments made by Parts 1 to 8 and 10 of this Schedule have effect in
40relation to accounting periods beginning on or after 1 April 2017.

(2) For the purposes of the amendments made by Parts 1 to 8 and 10 of this
Schedule, where a company has an accounting period beginning before 1
April 2017 and ending on or after that date (“the straddling period”)—

(a) so much of the straddling period as falls before 1 April 2017, and so
much of that period as falls on or after that date, are treated as
separate accounting periods, and

(b) where it is necessary to apportion an amount for the straddling
5period to the two separate accounting periods, it is to be
apportioned—

(i) in accordance with section 1172 of CTA 2010 (time basis), or

(ii) if that method would produce a result that is unjust or
unreasonable, on a just and reasonable basis.

(3) 10Section 5(4) to (6) of CT(NI)A 2015 (commencement) has effect as if
references to Part 8B of CTA 2010 were to that Part as amended by Part 9 of
this Schedule.

Section 31

SCHEDULE 10 Corporate interest restriction

15Part 1 New Part 10 of TIOPA 2010

1 In TIOPA 2010, after Part 9A insert—

““Part 10 Corporate interest restriction

CHAPTER 1 20Introduction

372 Overview

(1) This Part contains provision that—

(a) disallows certain amounts that a company would (apart from
this Part) be entitled to bring into account for the purposes of
25corporation tax in respect of interest and other financing
costs, and

(b) allows certain amounts disallowed under this Part in
previous accounting periods to be brought into account in
later accounting periods.

(2) 30In this Chapter—

(a) section 373 defines some key concepts including, in
particular, “the total disallowed amount” in relation to a
period of account of a worldwide group, and

(b) section 374 provides for Schedule 7A to have effect.

(3) 35Chapter 2 provides for—

(a) the disallowance in certain circumstances of tax-interest
expense amounts of companies that are members of a
worldwide group, and

(b) the carrying forward of disallowed tax-interest expense
amounts, and for bringing those amounts into account in
certain circumstances in relation to a later period of account
of the worldwide group.

(4) 5Chapter 3—

(a) defines “a tax-interest expense amount” and “a tax-interest
income amount” of a company for a period of account of a
worldwide group, which are amounts that are (or apart from
this Part would be) brought into account for the purposes of
10corporation tax,

(b) defines “the net tax-interest expense” of a company for a
period of account of a worldwide group, which is any excess
of the company’s tax-interest expense amounts for the period
over its tax-interest income amounts for the period,

(c) 15defines “the net tax-interest income” of a company for a
period of account of a worldwide group, which is any excess
of the company’s tax-interest income amounts for the period
over its tax-interest expense amounts for the period, and

(d) defines “aggregate net tax-interest expense” and “aggregate
20net tax-interest income” of a worldwide group for a period of
account of the worldwide group, which are made up of each
member of the group’s net tax-interest expense or net tax-
interest income for the period.

(5) Chapter 4 contains provision about the calculation of “the interest
25capacity” of a worldwide group for a period of account of the group,
which is the aggregate of the interest allowance for the period and
any unused interest allowance of the group from the previous 5
years (or, if that aggregate is less than the de minimis amount, the de
minimis amount).

(6) 30Chapter 5 makes provision about the calculation of “the interest
allowance” of a worldwide group for a period of account of the
group.

The interest allowance for a period of account is calculated using the
fixed ratio method unless the group elects for the group ratio method
35to be used for the period.

(7) Chapter 6 defines concepts used in Chapter 5 including—

• the “tax-EBITDA” of a company for a period of account of a
  worldwide group (which is an amount derived from
  amounts brought into account for the purposes of
  40corporation tax);

• the “aggregate tax-EBITDA” of a worldwide group for a period
  of account of the group (which is an amount derived from the
  tax-EBITDA of members of the group).

(8) Chapter 7 defines additional concepts used in Chapter 5 including—

• 45“the net group-interest expense”, “the adjusted net group-
  interest expense” and “the qualifying net group-interest
  expense” of a worldwide group for a period of account of the
  group (which are amounts derived from the financial
  statements of the worldwide group);

Finance (No. 2) BillPage 384

• the “group-EBITDA” of the worldwide group for a period of
  account of the group (which is an amount derived from the
  financial statements of the worldwide group).

(9) Chapter 8 contains provision altering the way in which this Part has
5effect in relation to the provision of public infrastructure assets or the
carrying on of certain other related activities.

(10) Chapter 9 contains special provision altering the operation of certain
provisions of this Part in relation to—

(a) particular types of company (for example, banking
10companies, companies carrying on oil-related activities,
REITs or insurance companies), or

(b) particular types of transaction or accounting (for example,
long funding operating leases or fair value accounting).

(11) Chapter 10 contains rules connected with tax avoidance.

(12) 15Chapter 11 contains the remaining interpretative and supplementary
provision, including definitions of—

• “related party”;

• “a worldwide group”;

• “ultimate parent”;

• 20“period of account” of a worldwide group.

373 Meaning of “subject to interest restrictions”, “the total disallowed
amount” etc

(1) A worldwide group is “subject to interest restrictions” in a period of
account of the group if—

(a) 25the aggregate net tax-interest expense of the group for the
period (see section 390), exceeds

(b) the interest capacity of the group for the period (see section
392).

(2) “The total disallowed amount” of a worldwide group in a period of
30account of the group is—

(a) if the group is subject to interest restrictions in the period, the
amount of the excess mentioned in subsection (1);

(b) otherwise, nil.

(3) “The interest reactivation cap” of a worldwide group in a period of
35account of the group is (subject to subsection (4))—

(a) the interest allowance of the group for the period (see section
396), less

(b) the aggregate net tax-interest expense of the group for the
period.

(4) 40If the amount determined under subsection (3) is a negative amount,
the interest reactivation cap of the worldwide group in the period is
nil.

(5) A worldwide group is “subject to interest reactivations” in a period
of account of the group if—

(a) 45the interest reactivation cap of the group in the period is not
nil, and

(b) at least one member of the group is within the charge to
corporation tax at any time during the period, and has an
amount available for reactivation in the return period that is
not nil (see paragraph 26 of Schedule 7A).

(6) 5This section has effect for the purposes of this Part.

374 Interest restriction returns

(1) Schedule 7A makes provision about—

(a) the preparation and submission of interest restriction returns
by reporting companies of worldwide groups, and

(b) 10other related matters such as enquiries and information
powers.

(2) Part 1 of that Schedule includes provision—

(a) for the appointment of a reporting company of a worldwide
group for a period of account, but

(b) 15for companies (“non-consenting companies”) to elect to be
unaffected by allocations of interest restrictions made by the
company.

(3) Part 2 of that Schedule includes provision—

(a) for various elections to be made in an interest restriction
20return that are relevant to the operation of this Part (for
example, the group ratio election),

(b) entitling the reporting company of a worldwide group to
allocate interest restrictions among its members but with a
rule that allocates a pro-rata share to a non-consenting
25company, and

(c) entitling the reporting company of a worldwide group to
allocate interest reactivations among its members.

(4) The remaining Parts of that Schedule contain provision about—

(a) the keeping and preservation of records (see Part 3),

(b) 30enquiries into interest restriction returns (see Part 4),

(c) determinations made by officers of Revenue and Customs in
the event of the breach of filing or other obligations (see Part
5),

(d) information powers exercisable by members of the group
35(see Part 6),

(e) information powers exercisable by officers of Revenue and
Customs (see Part 7), and

(f) the amendment of company tax returns to reflect the effect of
this Part of this Act and supplementary matters (see Parts 8
40and 9).

CHAPTER 2 Disallowance and reactivation of tax-interest expense amounts

375 Disallowance of deductions: full interest restriction return submitted

(1) This section applies where—

(a) an interest restriction return is submitted for a period of
account of a worldwide group (“the relevant period of
account”),

(b) the return complies with the requirements of paragraph 20(3)
5of Schedule 7A (requirements for full interest restriction
return), and

(c) the return includes a statement that the group is subject to
interest restrictions in the return period.

(2) A company that is listed on the statement under paragraph 22 of
10Schedule 7A (statement of allocated interest restrictions) must, in
any accounting period for which the statement specifies an allocated
disallowance, leave out of account tax-interest expense amounts
that, in total, equal that allocated disallowance.

(3) A non-consenting company in relation to the return may elect that
15subsection (2) is not to apply in relation to such relevant accounting
period of the company as is specified in the election.

(4) If—

(a) a non-consenting company makes an election in relation to an
accounting period, and

(b) 20paragraph 24 of Schedule 7A allocates to that period a pro-
rata share of the total disallowed amount that is not nil,

the company must leave out of account in that period tax-interest
expense amounts that, in total, equal that pro-rata share.

(5) An election under this section is of no effect unless it is received by
25an officer of Revenue and Customs before—

(a) the filing date in relation to the interest restriction return (see
paragraph 7(5) of Schedule 7A), or

(b) if later, the end of the period of 3 months beginning with the
day on which the return was received by an officer of
30Revenue and Customs.

(6) See section 377 for provision as to which tax-interest expense
amounts are to be left out of account as a result of this section.

(1) This section applies where—

(a) a worldwide group is subject to interest restrictions in a
35period of account of the group (“the relevant period of
account”),

(b) the relevant date has passed, and

(c) condition A, B or C is met.

(2) In this section “the relevant date” means—

(a) 40where the appointment of a reporting company has effect in
relation to the relevant period of account, the filing date (see
paragraph 7(5) of Schedule 7A);

(b) otherwise, the last day of the period of 12 months beginning
with the end of the relevant period of account.

(3) Condition A is that no appointment of a reporting company has
effect in relation to the relevant period of account.

(4) Condition B is that—

(a) the appointment of a reporting company has effect in relation
5to the relevant period of account, and

(b) no interest restriction return has been submitted for the
period.

(5) Condition C is that—

(a) the appointment of a reporting company has effect in relation
10to the relevant period of account,

(b) an interest restriction return has been submitted for the
period, and

(c) the return does not comply with the requirements of
paragraph 20(3) of Schedule 7A (for example by including
15inaccurate figures).

(6) A relevant company must, in any accounting period to which
paragraph 24 of Schedule 7A allocates a pro-rata share of the total
disallowed amount that is not nil, leave out of account tax-interest
expense amounts that, in total, equal that pro-rata share.

(7) 20See section 377 for provision as to which tax-interest expense
amounts are to be left out of account under subsection (5).

(8) In this section “relevant company” means a company that was a
member of the worldwide group at any time during the relevant
period of account.

377 25Disallowance of deductions: identification of the tax-interest amounts
to be left out of account

(1) This section applies where—

(a) a company is required to leave tax-interest expense amounts
out of account in an accounting period under section 375 or
30376, and

(b) the total of the tax-interest expense amounts that, apart from
that provision, would be brought into account in the
accounting period exceeds the total of the tax-interest
expense amounts that are required by that provision to be left
35out of account in that period.

(2) Tax-interest expense amounts must (subject to the following
provisions of this section) be left out of account in the following
order.

First, leave out of account tax-interest expense amounts that meet
40condition A in section 382 and would (if brought into account) be
brought into account under Part 5 of CTA 2009 (non-trading debits
in respect of loan relationships).

Second, leave out of account tax-interest expense amounts that meet
condition B in section 382 and would (if brought into account) be
45brought into account under Part 5 of CTA 2009 as a result of section
574 of that Act (non-trading debits in respect of derivative contracts).

Third, leave out of account tax-interest expense amounts that meet
condition A in section 382 and would (if brought into account) be

brought into account under Part 3 of CTA 2009 as a result of section
297 of that Act (debits in respect of loan relationships treated as
expenses of trade).

Fourth, leave out of account tax-interest expense amounts that meet
5condition B in section 382 and would (if brought into account) be
brought into account under Part 3 of CTA 2009 as a result of section
573 of that Act (debits in respect of derivative contracts treated as
expenses of trade).

Fifth, leave out of account tax-interest expense amounts that meet
10condition C in section 382 and do not also meet condition A or B in
that section (finance leases, debt factoring and service concession
arrangements).

(3) The company may—

(a) elect that subsection (2) is not to apply to the accounting
15period, or

(b) revoke an election previously made.

(4) An election under this section must specify the particular tax-interest
expense amounts that are to be left out of account.

378 Disallowed tax-interest expense amounts carried forward

(1) 20For the purposes of this Part a tax-interest expense amount of a
company is “disallowed” in an accounting period if the company is
required to leave it out of account in that accounting period under
section 375 or 376.

(2) A tax-interest expense amount of a company that is disallowed in an
25accounting period is (subject to the remaining provisions of this
section) carried forward to subsequent accounting periods.

(3) Where—

(a) a tax-interest expense amount of a company would (apart
from this Part) be brought into account in calculating the
30profits or losses of a trade carried on by the company in an
accounting period,

(b) the tax-interest expense amount is disallowed in that
accounting period, and

(c) in a subsequent accounting period (“the later accounting
35period”) the company ceases to carry on the trade, or the scale
of the activities in the trade becomes small or negligible,

the tax-interest expense amount is not carried forward to the later
accounting period or accounting periods after the later accounting
period.

(4) 40Where—

(a) a tax-interest expense amount of a company would (apart
from this Part) be brought into account in calculating the
profits or losses of a trade carried on by the company in an
accounting period,

(b) 45the tax-interest expense amount is disallowed in that
accounting period, and

(c) in a subsequent accounting period (“the later accounting
period”) the trade is uncommercial and non-statutory,

the tax-interest expense amount is not carried forward to the later
accounting period or accounting periods after the later accounting
period.

(5) For the purposes of subsection (4), a trade is “uncommercial and non-
5statutory” in an accounting period if, were the company to have
made a loss in the trade in the period, relief for the loss under section
37 of CTA 2010 (relief for trade losses against total profits) would
have been unavailable by virtue of section 44 of that Act (trade must
be commercial or carried on for statutory functions).

(6) 10Where—

(a) a tax-interest expense amount of a company would (apart
from this Part) be brought into account in calculating the
profits or losses of an investment business carried on by the
company in an accounting period,

(b) 15the tax-interest expense amount is disallowed in that
accounting period, and

(c) in a subsequent accounting period (“the later accounting
period”) the company ceases to carry on the investment
business, or the scale of the activities in the investment
20business becomes small or negligible,

the tax-interest expense amount is not carried forward to the later
accounting period or accounting periods after the later accounting
period.

(7) Where a tax-interest expense amount—

(a) 25is disallowed in an accounting period,

(b) is carried forward to a subsequent accounting period (“the
later accounting period”), and

(c) is brought into account in the later accounting period in
accordance with section 379,

30it is not carried forward to accounting periods after the later
accounting period.

379 Reactivation of interest

(1) This section applies where—

(a) an interest restriction return is submitted for a period of
35account of a worldwide group (“the relevant period of
account”),

(b) the return complies with the requirements of paragraph 20(3)
of Schedule 7A (requirements for full interest restriction
return), and

(c) 40the return contains a statement that the group is subject to
interest reactivations in the return period.

(2) A company that is listed on the statement under paragraph 25 of
Schedule 7A (statement of allocated interest reactivations) must, in
the specified accounting period, bring into account tax-interest
45expense amounts that—

(a) are brought forward to the specified accounting period from
an earlier accounting period, and

(b) in total, equal the allocated reactivation for the return period.