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

to credit for foreign tax reduces UK tax by amount of the
credit).

(2) The relevant amount is treated, for the purposes of section 406(2)
(meaning of “adjusted corporation tax earnings”) as not meeting the
5condition mentioned in subsection (1)(a) to the extent that it consists
of notional untaxed income.

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

CHAPTER 7 15Group-interest and group-EBITDA

Group-interest

410 Net group-interest expense

(1) For the purposes of this Part the “net group-interest expense” of a
worldwide group for a period of account of the group (“the relevant
20period of account”) is—

(2) Subsection (3) applies where—

(a) 30an amount in respect of a relevant expense matter (“the
capitalised expense”) is brought into account in financial
statements of the group (whether for the relevant period of
account or any earlier period) in determining the carrying
value of an asset,

(b) 35the asset is not a relevant asset, and

(c) in the financial statements of the group for the relevant
period of account, any of the carrying value is written down.

(3) A in subsection (1) is treated as including so much of the amount
written down as is attributable to the capitalised expense.

(4) 40Subsection (5) applies where—

(a) an amount in respect of a relevant income matter (“the
capitalised income”) is brought into account in financial
statements of the group (whether for the relevant period of
account or any earlier period) in determining the carrying
5value of an asset,

(b) the asset is not a relevant asset, and

(c) in the financial statements of the group for the relevant
period of account, any of the carrying value is written down.

(5) B in subsection (1) is treated as including the amount of the reduction
10in the amount written down that is attributable to the capitalised
income.

(6) See—

• section 411 for the definitions of “relevant expense matter” and
  “relevant income matter;

• 15section 417(5) and (6) for the definition of “relevant asset”;

• section 420 for provision affecting amounts recognised in
  financial statements in respect of certain profits or losses
  arising from derivative contracts.

411 “Relevant expense matter” and “relevant income matter”

(1) 20In this Chapter “relevant expense matter” means any of the
following—

(a) interest payable under a loan relationship;

(b) expenses ancillary to a loan relationship;

(c) losses arising from a loan relationship or a related
25transaction, other than—

(i) exchange losses, and

(ii) impairment losses;

(d) dividends payable in respect of preference shares accounted
for as a financial liability;

(e) 30losses arising from a relevant derivative contract or a related
transaction, other than—

(i) exchanges losses,

(ii) impairment losses, and

(iii) losses where the contract hedges risks arising in the
35ordinary course of a trade and the contract was
entered into wholly for reasons unrelated to the
capital structure of the worldwide group (or any
member of the worldwide group);

(f) expenses ancillary to a relevant derivative contract or related
40transaction;

(g) financing charges implicit in payments made under a finance
lease;

(h) financing charges relating to debt factoring;

(i) financing charges implicit in payments made under a service
45concession arrangement if and to the extent that the
arrangement is accounted for as a financial liability;

(j) interest payable in respect of a relevant non-lending
relationship;

(k) alternative finance return payable under alternative finance
arrangements;

(l) manufactured interest payable;

(m) financing charges in respect of the advance under a debtor
5repo or debtor quasi-repo;

(n) financing charges so far as they are made up of amounts
which—

(i) are treated as interest payable under a loan
relationship under a relevant provision of Chapter 2
10of Part 16 of CTA 2010 (finance arrangements), or

(ii) would be so treated if the company in question were
within the charge to corporation tax.

(2) In this Chapter “relevant income matter” means any of the
following—

(a) 15interest receivable under a loan relationship;

(b) profits arising from a loan relationship or a related
transaction, other than—

(i) exchange gains, and

(ii) the reversal of impairment losses;

(c) 20dividends receivable in respect of preference shares
accounted for as a financial asset;

(d) gains arising from a relevant derivative contract or a related
transaction, other than—

(i) exchange gains,

(ii) 25the reversal of impairment losses, and

(iii) gains where the contract hedges risks arising in the
ordinary course of a trade and the contract was
entered into wholly for reasons unrelated to the
capital structure of the worldwide group (or any
30member of the worldwide group)

(e) financing income implicit in amounts received under a
finance lease;

(f) financing income relating to debt factoring;

(g) financing income implicit in amounts received under a
35service concession arrangement if and to the extent that the
arrangement is accounted for as a financial asset;

(h) interest receivable in respect of a relevant non-lending
relationship;

(i) alternative finance return receivable under alternative
40finance arrangements;

(j) manufactured interest receivable;

(k) financing income in respect of the advance under a creditor
repo or creditor quasi-repo;

(l) financing income so far as it is made up of amounts which—

(i) 45are treated as interest receivable under a loan
relationship under a relevant provision of Chapter 2
of Part 16 of CTA 2010 (finance arrangements), or

(ii) would be so treated if the company in question were
within the charge to corporation tax.

(3) 50In subsection (1)—

(a) in paragraph (c), “related transaction” and “exchange loss”
have the same meanings as in Parts 5 and 6 of CTA 2009 (see
sections 304 and 475 of that Act);

(b) in paragraph (e), “related transaction” and “exchange loss”
5have the same meaning as in Part 7 of that Act (see sections
596 and 705 of that Act).

(4) In subsection (2)—

(a) in paragraph (b), “exchange gain” has the same meaning as in
Parts 5 and 6 of CTA 2009 (section 475 of that Act);

(b) 10in paragraph (d), “exchange gain” has the same meaning as
in Part 7 of that Act (see section 705 of that Act).

412 Section 411: interpretation

(1) For the purposes of section 411(1)(b), expenses are “ancillary” to a
loan relationship if and only if they are incurred directly—

(a) 15in bringing, or attempting to bring, the relationship into
existence,

(b) in making payments under the loan relationship, or

(c) in taking steps to ensure the receipt of payments under the
loan relationship.

(2) 20For the purposes of section 411(1)(e) and (2)(d) a derivative contract
is “relevant” if its underlying subject matter consists only of one or
more of the following—

(a) interest rates;

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

(c) 25currency;

(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) 30of small value in comparison with the value of the
underlying subject matter as a whole.

(3) Whether part of the underlying subject matter of a derivative
contract is subordinate or of small value is to be determined for the
purposes of subsection (2)(e) by reference to the time when the
35company enters into or acquires the contract.

(4) For the purposes of section 411(1)(f) expenses are “ancillary” to a
relevant derivative contract or related transaction if and only if they
are incurred directly—

(a) in bringing, or attempting to bring, the derivative contract
40into existence,

(b) in entering into or giving effect to, or attempting to enter into
or give effect to, the related transaction,

(c) in making payments under the derivative contract or as a
result of the related transaction, or

(d) 45in taking steps to secure the receipt of payments under the
derivative contract or in accordance with the related
transaction.

(5) For the purposes of section 411(1)(n) and (2)(l), the following
provisions of Chapter 2 of Part 16 of CTA 2010 are “relevant”—

(a) section 761(3) (type 1 finance arrangements: borrower a
company);

(b) 5section 762(3) (type 1 finance arrangements: borrower a
partnership);

(c) section 766(3) (type 2 finance arrangements);

(d) section 769(3) (type 3 finance arrangements).

(6) In section 411 and this section—

• 10“alternative finance arrangements” has the same meaning as in
  Parts 5 and 6 of CTA 2009 (see section 501(2) of that Act);

• “alternative finance return” has the same meaning as in Part 6 of
  CTA 2009 (see sections 511 to 513 of that Act);

• “creditor quasi-repo” has the same meaning as in Chapter 10 of
  15Part 6 of CTA 2009 (see section 544 of that Act);

• “creditor repo” has the same meaning as in Chapter 10 of Part 6
  of CTA 2009 (see section 543 of that Act);

• “debtor quasi-repo” has the same meaning as in Chapter 10 of
  Part 6 of CTA 2009 (see section 549 of that Act);

• 20“debtor repo” has the same meaning as in Chapter 10 of Part 6
  of CTA 2009 (see section 548 of that Act);

• “manufactured interest” has the same meaning as in Chapter 9
  of Part 6 of CTA 2009 (see section 539(5) of that Act);

• “relevant non-lending relationship” has the same meaning as in
  25Chapter 2 of Part 6 of CTA 2009 (see sections 479 and 480 of
  that Act);

• “underlying subject matter” has the same meaning as in Part 7
  of CTA 2009 (see section 583 of that Act).

413 Adjusted net group-interest expense

(1) 30For the purposes of this Part the “adjusted net group-interest
expense” of a worldwide group for a period of account of the group
is (subject to subsection (2))—

• 35A is the net group-interest expense of the group for the period
  (see section 410);

• B is the sum of any upward adjustments (see subsection (3));

• C is the sum of any downward adjustments (see subsection (4)).

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

(3) In this section “upward adjustment” means any of the following
amounts—

(a) an amount in respect of a relevant expense matter that is
45brought into account in the financial statements of the group
for the period in determining the carrying value of an asset or
liability;

(b) an amount that is included in the net group-interest expense
of the group for the period by virtue of section 410(5)
(capitalised income written off);

(c) an amount in respect of a relevant expense matter that—

(i) 5in the financial statements of the group for the period
is recognised in equity or shareholders’ funds, and is
not recognised as an item of profit or loss or as an item
of other comprehensive income, and

(ii) is brought into account for the purposes of
10corporation tax by a member of the group under a
relevant enactment, or would be so brought into
account if the member were within the charge to
corporation tax;

(d) an amount in respect of a relevant income matter that is
15recognised in the financial statements of the group for the
period, as an item of profit or loss, so far as it—

(i) is prevented from being brought into account for the
purposes of corporation tax by a member of the group
by section 322(2) or 323A of CTA 2009 (cases where
20credits not required to be brought into account), or

(ii) would be so prevented if the member were within the
charge to corporation tax.

(4) In this section “downward adjustment” means any of the following
amounts—

(a) 25an amount in respect of a relevant income matter that is
brought into account in the financial statements of the group
for the period in determining the carrying value of an asset or
liability;

(b) an amount that is included in the net group-interest expense
30of the group for the period by virtue of section 410(3)
(capitalised expense written off);

(c) an amount in respect of a relevant income matter that—

(i) in the financial statements of the group for the period
is recognised in equity or shareholders’ funds, and is
35not recognised as an item of profit or loss or as an item
of other comprehensive income, and

(ii) is brought into account for the purposes of
corporation tax by a member of the group under a
relevant enactment, or would be so brought into
40account if the member were within the charge to
corporation tax;

(d) an amount in respect of a relevant expense matter that is
recognised in the financial statements of the group for the
period, as an item of profit or loss, so far as it—

(i) 45is prevented from being brought into account for the
purposes of corporation tax by a member of the group
by section 322(2) or 323A of CTA 2009 (cases where
credits not required to be brought into account), or

(ii) would so prevented if the member were within the
50charge to corporation tax;

(e) an amount in respect of a relevant expense matter that is
recognised in the financial statements of the group for the
period, as an item of profit or loss, so far as—

(i) the amount represents a dividend payable in respect
5of preference shares, and

(ii) those shares are recognised as a liability in the
financial statements of the group for the period.

(5) The references in subsections (3)(a) and (4)(a) to amounts brought
into account in determining the carrying value of an asset or liability
10do not include amounts so brought into account as the result of
writing off any part of an amount which was itself so brought into
account.

(6) In subsections (3)(c)(ii) and (4)(c)(ii), “relevant enactment” means—

(a) section 321 or 605 of CTA 2009 (credits and debits recognised
15in equity), or

(b) regulation 3A of the Taxation of Regulatory Capital
Securities Regulations 2013 (S.I. 2013/3209S.I. 2013/3209) (amounts
recognised in equity).

414 Qualifying net group-interest expense

(1) 20For the purposes of this Part the “qualifying net group-interest
expense” of a worldwide group for a period of account of the group
is (subject to subsection (2))—

(2) Where the amount determined under subsection (1) is negative, “the
qualifying net group-interest expense” of the group for the period is
30nil.

(3) In this section “downward adjustment” means an amount in respect
of a relevant expense matter that meets the condition in subsection
(4), so far as it relates to—

(a) a transaction with, or a financial liability owed to, a person
35who, at any time during the period, is a related party of a
member of the group,

(b) results-dependent securities, or

(c) equity notes.

(4) The condition mentioned in subsection (3) is that the amount—

(a) 40is recognised in the financial statements of the group for the
period, as an item of profit and loss, and is not (and is not
comprised in) a downward adjustment for the purposes of
section 413 (adjusted net group-interest expense), or

(b) is (or is comprised in) an upward adjustment for the
45purposes of that section.

(5) In a case where—

(a) the person mentioned in subsection (3)(a) is not a related
party of a member of the group during any part of the period
of account, or

(b) during any part of the period of account, the financial liability
5mentioned in subsection (3)(a) is owed to a person who is not
a related party of a member of the group,

the amount of the downward adjustment under subsection (3)(a) is
to be reduced by such amount (if any) as is attributable, on a just and
reasonable basis, to that part.

415 10Section 414: interpretation

(1) For the purposes of section 414 a person is treated as not being a
related party of a member of the group at any time (“the relevant
time”) if at the relevant time—

(a) the person would (apart from this subsection) be a related
15party of the member by virtue only of section 466(2) (parties
to loan relationship treated as related parties by virtue of
financial assistance provided by a related party), and

(b) any of the following conditions is met in relation to the
guarantee, indemnity or other financial assistance in
20question.

(2) The conditions are—

(a) that the financial assistance is provided before 1 April 2017;

(b) that the financial assistance is provided by a member of the
group;

(c) 25that the financial assistance relates only to an undertaking in
relation to—

(i) shares in the ultimate parent of the group, or

(ii) loans to a member of the group;

(d) that the financial assistance is a non-financial guarantee.

(3) 30Financial assistance is “a non-financial guarantee” if—

(a) it guarantees the performance by any person of contractual
obligations to provide goods or services to a member of the
group,

(b) it is given by the person providing the goods or services or by
35a related party of that person, and

(c) the maximum amount for which the guarantor is liable does
not exceed the consideration given under the contract for the
provision of the goods or services.

(4) The reference in section 414(3)(b) to “results-dependent securities” is
40(subject to subsection (8)) to securities issued by an entity where the
consideration given by the entity for the use of the principal secured
depends (to any extent) on—

(a) the results of the entity’s business, or

(b) the results of the business of any other entity that was a
45member of the group at any time during the period of
account of the group.

In this subsection references to a business include part of a business.

(5) For the purposes of subsection (4) the consideration given by the
entity for the use of the principal secured does not fall within
paragraph (a) or (b) of that subsection merely because the terms of
the security provide—

(a) 5for the consideration to be reduced if the results mentioned in
that paragraph improve, or

(b) for the consideration to be increased if the results mentioned
in that paragraph deteriorate.

(6) An amount does not fall within section 414(3)(b) so far as it is
10relevant alternative finance return (within the meaning given by
section 1019(2) of CTA 2010).

(7) The reference in section 414(3)(c) to “equity notes” is (subject to
subsection (8)) to equity notes within the meaning given by section
1016 of CTA 2010.

(8) 15A regulatory capital security (within the meaning of Taxation of
Regulatory Capital Securities Regulations 2013 (S.I. 2013/3209S.I. 2013/3209)) is
not—

(a) a results-dependent security for the purposes of section
414(3)(b), or

(b) 20an equity note for the purposes of section 414(3)(c).

Group-EBITDA

416 Group-EBITDA

(1) For the purposes of this Part “the group-EBITDA” of a worldwide
group for a period of account of the group (“the relevant period of
25account”) is—

(2) For the purposes of this Chapter a worldwide group’s “profit before
35tax” is—

(a) the sum of the amounts that are recognised in the financial
statements of the group for the period, as items of profit or
loss, in respect of income of any description other than tax
income, less

(b) 40the sum of the amounts that are recognised in the financial
statements of the group for the period, as items of profit or
loss, in respect of expenses of any description other than tax
expense.

In this subsection “tax income” and “tax expense” have the meaning
45they have for accounting purposes.

(3) In this section the group’s “depreciation and amortisation
adjustment” means the sum of the following amounts (any of which
may be negative)—

(a) the capital (expenditure) adjustment (see section 417);

(b) 5the capital (fair value movement) adjustment (see section
418);

(c) the capital (disposals) adjustment (see section 419).

(4) The following expressions have the same meaning in sections 417 to
419 as they have in this section—

• 10“the relevant period of account”;

• “the group’s profit before tax”.

(5) For provision affecting amounts recognised in financial statements
in respect of certain profits or losses arising from derivative
contracts, see section 420.

417 15The capital (expenditure) adjustment

(1) For the purposes of section 416, “the capital (expenditure)
adjustment” is—

(2) In this section “relevant capital expenditure” means—

(a) 30expenditure of a capital nature that relates to relevant assets
and that—

(i) is incurred and recognised in the relevant period of
account, or

(ii) is recognised in the relevant period of account by way
35of depreciation or amortisation, or as the result of an
impairment review; and

(b) amounts recognised in the relevant period of account by way
of provision in respect of future expenditure of a capital
nature that relates to relevant assets.

(3) 40In this section “relevant capital expenditure reversals” means the
reversal in the relevant period of account of any relevant capital
expenditure recognised in an earlier period of account.

(4) In this section “relevant capital income” means income of a capital
nature that relates to relevant assets.

(5) 45In this Chapter “relevant asset” means an asset that is—

(a) plant, property and equipment,