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

(3) A tax-interest expense amount is brought into account in the
specified accounting period under subsection (2) by being treated as
a tax-interest expense amount of the specified accounting period (so
that, for example, a tax-interest expense amount that is a relevant
5loan relationship debit falling within section 383(2)(a)(ii) is brought
into account in the specified period as a non-trading debit under Part
5 of CTA 2009).

(4) See section 380 for provision as to which tax-interest expense
amounts are to be brought into account under subsection (2).

(5) 10In this section “the specified accounting period” means—

(a) the earliest relevant accounting period of the company, or

(b) where the company became a member of the relevant
worldwide group during the relevant period of account, the
earliest relevant accounting period of the company in which
15it was a member of the group.

380 Reactivation of deductions: identification of the tax-interest amounts
to be brought into account

(1) This section applies where—

(a) a company is required to bring tax-interest expense amounts
20into account in an accounting period under section 379, and

(b) the total of the tax-interest expense amounts that are brought
forward to the accounting period from earlier accounting
periods exceeds the total of the tax-interest expense amounts
that are required by that provision to be brought into account
25in that accounting period.

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

First, bring into account tax-interest expense amounts that meet
30condition A in section 382 and are brought into account under Part 5
of CTA 2009 (non-trading debits in respect of loan relationships).

Second, bring into account tax-interest expense amounts that meet
condition B in section 382 and are brought into account under Part 5
of CTA 2009 as a result of section 574 of that Act (non-trading debits
35in respect of derivative contracts).

Third, bring into account tax-interest expense amounts that meet
condition A in section 382 and are 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).

40Fourth, bring into account tax-interest expense amounts that meet
condition B in section 382 and are 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, bring into account tax-interest expense amounts that meet
45condition 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
period, or

(b) revoke an election previously made.

(4) An election under this section must specify the particular tax-interest
5expense amounts that are to be brought into account.

381 Set-off of disallowances and reactivations in the same accounting
period

(1) This section applies where, as a result of the operation of this Part in
relation to different periods of account (whether of the same or a
10different worldwide group), a company would, apart from this
section—

(a) be required to leave out of account one or more tax-interest
expense amounts in an accounting period under section 375
or 376, and

(b) 15be required to bring one or more tax-interest expense
amounts into account in that accounting period under section
379.

(2) In this section—

(a) “the gross disallowed amount” means the amount, or total of
20the amounts, mentioned in subsection (1)(a);

(b) “the gross reactivated amount” means the amount, or total of
the amounts, mentioned in subsection (1)(b).

(3) Where the gross disallowed amount is equal to the gross reactivated
amount, no tax-interest expense amounts are to be left out of account
25in the accounting period under this Part or brought into account in
the accounting period under this Part.

(4) Where the gross disallowed amount is more than the gross
reactivated amount—

(a) the requirement in section 375 or 376 is to leave out of account
30tax-interest expense amounts that, in total, equal the gross
disallowed amount less the gross reactivated amount, and

(b) no amount is to be brought into account in the accounting
period under section 379.

(5) Where the gross reactivated amount is more than the gross
35disallowed amount—

(a) no amount to be left out of account in the accounting period
under section 375 or 376, and

(b) the requirement in section 379 is to bring into account the
gross reactivated amount less the gross disallowed amount.

CHAPTER 3 Tax-interest amounts

Tax-interest expense and income amounts: basic rules

382 The tax-interest expense amounts of a company

(1) References in this Part to a “tax-interest expense amount” of a
5company for a period of account of a worldwide group are to any
amount that—

(a) is (or apart from this Part would be) brought into account for
the purposes of corporation tax in a relevant accounting
period of the company, and

(b) 10meets condition A, B or C.

(2) Condition A is that the amount is a relevant loan relationship debit
(see section 383).

(3) Condition B is that the amount is a relevant derivative contract debit
(see section 384).

(4) 15Condition C is that the amount is in respect of the financing cost
implicit in amounts payable under a relevant arrangement or
transaction.

(5) In subsection (4) “relevant arrangement or transaction” means—

(a) a finance lease,

(b) 20debt factoring, or any similar transaction, or

(c) a service concession arrangement if and to the extent that the
arrangement is accounted for as a financial liability.

(6) Subsection (8) applies if an accounting period in which a tax-interest
expense amount is (or apart from this Part would be) brought into
25account for the purposes of corporation tax contains one or more
disregarded periods.

(7) A “disregarded period” is any period falling within the accounting
period—

(a) which does not fall within the period of account of the
30worldwide group, or

(b) throughout which the company is not a member of the group.

(8) Where this subsection applies, the tax-interest expense amount
mentioned in subsection (6) is reduced by such amount as is
referable, on a just and reasonable basis, to the disregarded period or
35periods mentioned in that subsection.

(9) An amount may be reduced to nil under subsection (8).

383 Relevant loan relationship debits

(1) This section applies for the purposes of section 382.

(2) An amount is a “relevant loan relationship debit” if—

(a) 40it is a debit that is (or apart from this Part would be) brought
into account for the purposes of corporation tax in respect of
a loan relationship under—

(i) Part 3 of CTA 2009 as a result of section 297 of that Act
(loan relationships for purposes of trade), or

(ii) Part 5 of that Act (other loan relationships), and

(b) is not an excluded debit.

(3) 5A debit is “excluded” for the purposes of subsection (2)(b) if—

(a) it is in respect of an exchange loss (within the meaning of
Parts 5 and 6 of CTA 2009), or

(b) it is in respect of an impairment loss.

384 Relevant derivative contract debits

(1) 10This section applies for the purposes of section 382.

(2) An amount is a “relevant derivative contract debit” if—

(a) it is a debit that is (or apart from this Part would be) brought
into account for the purposes of corporation tax in respect of
a derivative contract under—

(i) 15Part 3 of CTA 2009 as a result of section 573 of that Act
(derivative contracts for purposes of trade), or

(ii) Part 5 of that Act as a result of section 574 of that Act
(other derivative contracts),

(b) it is not an excluded debit, and

(c) 20the condition in subsection (4) is met.

(3) A debit is “excluded” for the purposes of subsection (2)(b) if—

(a) it is in respect of an exchange loss (within the meaning of Part
7 of CTA 2009),

(b) it is in respect of an impairment loss, or

(c) 25it is in respect of a derivative contract which hedges risks
arising in the ordinary course of a trade where the contract
was entered into wholly for reasons unrelated to the capital
structure of the worldwide group (or any member of the
worldwide group).

(4) 30The condition referred to in subsection (2)(c) is that the underlying
subject matter of the derivative contract consists only of one or more
of the following—

(a) interest rates;

(b) any index determined by reference to income or retail prices;

(c) 35currency;

(d) an asset or liability representing a loan relationship;

(e) any other underlying subject matter which is—

(i) subordinate in relation to any of the matters
mentioned in paragraphs (a) to (d), or

(ii) 40of small value in comparison with the value of the
underlying subject matter as a whole.

(5) For the purposes of this section, whether part of the underlying
subject matter of the derivative contract is subordinate or of small
value is to be determined by reference to the time when the company
45enters into or acquires the contract.

(6) In this section “underlying subject matter” has the same meaning as
in Part 7 of CTA 2009.

385 The tax-interest income amounts of a company

(1) References in this Part to a “tax-interest income amount” of a
company for a period of account of a worldwide group are to any
amount that—

(a) 5is (or apart from this Part would be) brought into account for
the purposes of corporation tax in a relevant accounting
period of the company, and

(b) meets condition A, B, C or D.

(2) Condition A is that the amount is a relevant loan relationship credit
10(see section 386).

(3) Condition B is that the amount is a relevant derivative contract credit
(see section 387).

(4) Condition C is that the amount is in respect of the financing income
implicit in amounts receivable under a relevant arrangement or
15transaction.

(5) In subsection (4) “relevant arrangement or transaction” means—

(a) a finance lease,

(b) debt factoring, or any similar transaction, or

(c) a service concession arrangement if and to the extent that the
20arrangement is accounted for as a financial asset.

(6) Condition D is that the amount is in respect of income that—

(a) is receivable from another company, and

(b) is in consideration of the provision of a guarantee of any
borrowing of that other company.

(7) 25Subsection (9) applies if an accounting period in which a tax-interest
income amount is (or apart from this Part would be) brought into
account for the purposes of corporation tax contains one or more
disregarded periods.

(8) A “disregarded period” is any period falling within the accounting
30period—

(a) which does not fall within the period of account of the
worldwide group, or

(b) throughout which the company is not a member of the group.

(9) Where this subsection applies, the tax-interest income amount
35mentioned in subsection (7) is reduced by such amount as is
referable, on a just and reasonable basis, to the disregarded period or
periods mentioned in that subsection.

(10) An amount may be reduced to nil under subsection (9).

386 Relevant loan relationship credits

(1) 40This section applies for the purposes of section 385.

(2) An amount is a “relevant loan relationship credit” if—

(a) it is a credit that is (or apart from this Part would be) brought
into account for the purposes of corporation tax in respect of
a loan relationship under—

(i) Part 3 of CTA 2009 as a result of section 297 of that Act
(loan relationships for purposes of trade), or

(ii) Part 5 of that Act (other loan relationships), and

(b) it is not an excluded credit.

(3) 5A credit is “excluded” for the purposes of subsection (2)(b) if—

(a) it is in respect of an exchange gain (within the meaning of
Parts 5 and 6 of CTA 2009), or

(b) it is in respect of the reversal of an impairment loss.

387 Relevant derivative contract credits

(1) 10This section applies for the purposes of section 385.

(2) An amount is a “relevant derivative contract credit” if—

(a) it is a credit that is (or apart from this Part would be) brought
into account for the purposes of corporation tax in respect of
a derivative contract under—

(i) 15Part 3 of CTA 2009 as a result of section 573 of that Act
(derivative contracts for purposes of trade), or

(ii) Part 5 of that Act as a result of section 574 of that Act
(other derivative contracts),

(b) is not an excluded credit, and

(c) 20the condition in subsection (4) is met.

(3) A credit is “excluded” for the purposes of subsection (2)(b) if—

(a) it is in respect of an exchange gain (within the meaning of
Part 7 of CTA 2009),

(b) it is in respect of the reversal of an impairment loss, or

(c) 25it is in respect of a derivative contract which hedges risks
arising in the ordinary course of a trade where the contract
was entered into wholly for reasons unrelated to the capital
structure of the worldwide group (or any member of the
worldwide group).

(4) 30The condition referred to in subsection (2)(c) is that the underlying
subject matter of the derivative contract consists only of one or more
of the following—

(a) interest rates;

(b) any index determined by reference to income or retail prices;

(c) 35currency;

(d) an asset or liability representing a loan relationship;

(e) any other underlying subject matter which is—

(i) subordinate in relation to any of the matters
mentioned in paragraphs (a) to (d), or

(ii) 40of small value in comparison with the value of the
underlying subject matter as a whole.

(5) For the purposes of this section, whether part of the underlying
subject matter of the derivative contract is subordinate or of small
value is to be determined by reference to the time when the company
45enters into or acquires the contract.

(6) In this section “underlying subject matter” has the same meaning as
in Part 7 of CTA 2009.

Double taxation relief

388 Double taxation relief

(1) This section applies where—

(a) apart from this section, an amount (“the relevant amount”)
5would be a tax-interest income amount brought into account
for the purposes of corporation tax in a relevant accounting
period (“the relevant accounting period”) of a company, and

(b) the amount of corporation tax chargeable in respect of the
relevant amount is reduced under section 18(2) (entitlement
10to credit for foreign tax reduces UK tax by amount of the
credit).

(2) The relevant amount is not a tax-interest income amount to the
extent that it consists of notional untaxed income.

(3) For this purpose, the amount of the relevant amount that consists of
15“notional untaxed income” is—

Net tax-interest expense

389 The “net tax-interest expense” or “net tax-interest income” of a
company

(1) 25A company has “net tax-interest expense” for a period of account of
a worldwide group if the total of its tax-interest expense amounts for
the period exceeds the total of its tax-interest income amounts for the
period.

(2) The amount of the net tax-interest expense of the company for the
30period is the amount of the excess.

(3) A company has “net tax-interest income” for a period of account of a
worldwide group if the total of its tax-interest income amounts for
the period exceeds the total of its tax-interest expense amounts for
the period.

(4) 35The amount of the net tax-interest income of the company for the
period is the amount of the excess.

(5) The net tax-interest expense or net tax-interest income of a company
for a period of account of a worldwide group is “referable” to an
accounting period of the company to the extent that it comprises tax-
40interest expense amounts or tax-interest income amounts that are (or
apart from this Part would be) brought into account in the
accounting period.

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

390 The worldwide group’s aggregate net tax-interest expense and income

(1) The “aggregate net tax-interest expense” of a worldwide group for a
period of account of the group is (subject to subsection (2))—

(a) the total of the net tax-interest expense for the period of each
5relevant company that has such an amount, less

(b) the total of the net tax-interest income for the period of each
relevant company that has such an amount.

(2) Where the amount determined under subsection (1) is negative, the
“aggregate net tax-interest expense” of the group for the period is nil.

(3) 10The “aggregate net tax-interest income” of a worldwide group for a
period of account of the group is (subject to subsection (4))—

(a) the total of the net tax-interest income for the period of each
relevant company that has such an amount, less

(b) the total of the net tax-interest expense for the period of each
15relevant company that has such an amount.

(4) Where the amount determined under subsection (3) is negative, the
“aggregate net tax-interest income” of the group for the period is nil.

(5) In this section “relevant company” means a company that was a
member of the group at any time during the period of account of the
20group.

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

Interpretation

391 Meaning of “impairment loss”

(1) In this Part “impairment loss” means a loss in respect of the
25impairment of a financial asset.

(2) A reference to a debit in respect of an impairment loss does not
include a debit that is (or apart from this Part would be) brought into
account in an accounting period in respect of an asset for which fair
value accounting is used.

CHAPTER 4 30Interest capacity

392 The interest capacity of a worldwide group for a period of account

(1) For the purposes of this Part “the interest capacity” of a worldwide
group for a period of account of the group (“the current period”) is
(subject to subsection (2))—

35

where—

• A is the interest allowance of the group for the current period
  (see Chapter 5);

Finance (No. 2) BillPage 398

• B is the aggregate of the interest allowances of the group for
  periods before the current period so far as they are available
  in the current period (see section 393).

(2) Where the amount determined under subsection (1) is less than the
5de minimis amount for the current period, the interest capacity of the
worldwide group for the period is the de minimis amount.

(3) For this purpose “the de minimis amount” for a period of account
is—

(a) £2 million, or

(b) 10where the period is more than or less than a year, the amount
mentioned in paragraph (a) proportionately increased or
reduced.

393 Amount of interest allowance for a period that is “available” in a later
period

(1) 15This section applies for the purposes of this Chapter.

(2) The amount of the interest allowance of a worldwide group for a
period of account (“the originating period”) that is “available” in a
later period of account of the group (“the receiving period”) is
(subject to subsection (5)) the lower of amounts A and B.

(3) 20Amount A is—

(a) the amount of the interest allowance for the originating
period, less

(b) the total of the amount or amounts (if any) of that interest
allowance that were used in the originating period, or in any
25subsequent period of account of the group before the
receiving period (see section 394).

(4) Amount B is the amount (if any) of the interest allowance for the
originating period that is unexpired in the receiving period (see
section 395).

(5) 30The amount of the interest allowance for the originating period that
is “available” in the receiving period is nil if—

(a) an abbreviated return election is made in relation to the
originating period, the receiving period or any intervening
period of account of the group, or

(b) 35an interest restriction return is not submitted for any such
period.

394 When interest allowance is “used”

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

(2) The amount of the interest allowance of a worldwide group for a
40period of account of the group (“the originating period”) that is
“used” in the originating period is the lower of—

(a) the interest allowance for the originating period, and

(b) the sum of—

(i) the aggregate net tax-interest expense of the group for
45the originating period;

(ii) the total amount of tax-interest expense amounts
required to be brought into account in the originating
period under section 379 (reactivation of interest) by
members of the group.

(3) 5The amount of the interest allowance for the originating period that
is “used” in a later period of account of the group (“the receiving
period”) is the lower of—

(a) the interest allowance so far as it is available in the receiving
period (see section 393), and

(b) 10the relevant part of the aggregate net tax-interest expense of
the group for the receiving period (see subsection (4)).

(4) In subsection (3)(b) “the relevant part of the aggregate net tax-
interest expense of the group for the receiving period” is (subject to
subsection (5))—

15

(5) Where the amount determined under subsection (4) is negative, “the
relevant part of the aggregate net tax-interest expense of the group
25for the receiving period” is nil.

395 Amount of interest allowance for a period of account that is
“unexpired” in later period

(1) This section contains provision for determining for the purposes of
this Chapter the extent to which an interest allowance of a
30worldwide group for a period of account (“the originating period”)
is “unexpired” in a later period of account of the group (“the
receiving period”).

(2) If the receiving period—

(a) begins 5 years or less after the originating period begins, and

(b) 35ends 5 years or less after the originating period ends,

all of the interest allowance for the originating period is unexpired in
the receiving period.

(3) If the receiving period begins more than 5 years after the originating
period ends, none of the interest allowance for the originating period
40is unexpired in the receiving period.

(4) Subsection (5) applies if the receiving period—

(a) begins more than 5 years after the originating period begins,
and

(b) ends 5 years or less after the originating period ends.