Finance Bill (HC Bill 102)

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

(2) The conditions are—

(a) 5that the financial assistance is provided before 1 April 2017;

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

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

(i) 10shares 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) Financial assistance is “a non-financial guarantee” if—

(a) it guarantees the performance by any person of contractual
15obligations 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
a related party of that person, and

(c) the maximum amount for which the guarantor is liable does
20not 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
(subject to subsection (8)) to securities issued by an entity where the
consideration given by the entity for the use of the principal secured
25depends (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
member of the group at any time during the period of
account of the group.

30In 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) 35for 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
40relevant 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) 45A regulatory capital security (within the meaning of Taxation of
Regulatory Capital Securities Regulations 2013 (S.I. 2013/3209S.I. 2013/3209)) is
not—

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

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

Group-EBITDA
416 5Group-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
account”) is—


PBT + I + DA

10where—

  • PBT is the group’s profit before tax (which may be a negative
    amount) (see subsection (2));

  • I is the net group-interest expense of the group for the period
    (which may be a negative amount) (see section 410);

  • 15DA is the group’s depreciation and amortisation adjustment
    (which may be a negative amount) (see subsection (3)).

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

(a) the sum of the amounts that are recognised in the financial
20statements 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) the sum of the amounts that are recognised in the financial
statements of the group for the period, as items of profit or
25loss, in respect of expenses of any description other than tax
expense.

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

(3) In this section the group’s “depreciation and amortisation
30adjustment” means the sum of the following amounts (any of which
may be negative)—

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

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

(c) 35the 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—

  • “the relevant period of account”;

  • “the group’s profit before tax”.

(5) 40For provision affecting amounts recognised in financial statements
in respect of certain profits or losses arising from derivative
contracts, see section 420.

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417 The capital (expenditure) adjustment

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


A − B − C

5where—

  • A is the sum of the amounts (if any) in respect of relevant capital
    expenditure which are brought into account in determining
    the group’s profit before tax;

  • B is the sum of the amounts (if any) in respect of relevant capital
    10expenditure reversals which are brought into account in
    determining the group’s profit before tax;

  • C is the sum of the amounts (if any) in respect of relevant capital
    income which are brought into account in determining the
    group’s profit before tax.

(2) 15In this section “relevant capital expenditure” means—

(a) expenditure of a capital nature that relates to relevant assets
(including any relevant expense amounts previously
included in the carrying value of relevant assets) that is
recognised in the relevant period of account by way of
20depreciation or amortisation, or as the result of an
impairment review,

(b) expenditure of a capital nature that relates to relevant assets
that is incurred and recognised in the relevant period of
account, and

(c) 25amounts 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) In this section “relevant capital expenditure reversals” means the
reversal in the relevant period of account of any relevant capital
30expenditure 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) In this Chapter “relevant asset” means an asset that is—

(a) plant, property and equipment,

(b) 35an investment property,

(c) an intangible asset,

(d) goodwill,

(e) shares in a company, or

(f) an interest in an entity which entitles the holder to a share of
40the profits of the entity.

(6) In subsection (5)—

(a) “plant, property and equipment” has the meaning it has for
accounting purposes;

(b) “investment property” has the meaning it has for accounting
45purposes;

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(c) “intangible asset” has the meaning it has for accounting
purposes (and includes an internally-generated intangible
asset);

(d) “goodwill” has the meaning it has for accounting purposes
5(and includes internally-generated goodwill);

(e) “entity” includes anything which is treated as an entity in the
financial statements of the group (regardless of whether it
has a legal personality as a body corporate).

Section 712(2) and (3) of CTA 2009 (“intangible asset” includes
10intellectual property) applies for the purposes of paragraph (c).

(7) An amount does not fall within A in subsection (1) if it is brought into
account in determining a profit or loss on the disposal of a relevant
asset.

418 The capital (fair value movement) adjustment

(1) 15In section 416, “the capital (fair value movement) adjustment” means
the sum of any relevant fair value movements.

(2) For the purposes of subsection (1) there is a “relevant fair value
movement” where—

(a) the carrying value of a relevant asset is measured, for the
20purposes of the financial statements of the group, using fair
value accounting, and

(b) an amount representing a change in the carrying value of the
asset is brought into account in determining the group’s
profit before tax.

(3) 25The amount of the relevant fair value movement is the amount of the
change mentioned in subsection (2)(b) and—

(a) is a positive amount where the change is a loss;

(b) is a negative amount where the change is a profit.

(4) References in this section to a change in the carrying value of a
30relevant asset do not include a change where the amount brought
into account in respect of the change as mentioned in subsection
(2)(b) is of a revenue nature.

419 The capital (disposals) adjustment

(1) For the purposes of section 416, “the capital (disposals) adjustment”
35is—


A − B + C

where—

  • A is the sum of the amounts (if any) that are brought into
    account in determining the group’s profit before tax and that
    40represent losses on disposals of relevant assets;

  • B is the sum of the amounts (if any) that are brought into
    account in determining the group’s profit before tax and that
    represent profits on disposals of relevant assets;

  • C is the sum of any recalculated profit amounts (see subsections
    45(2) to (8)).

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(2) For the purposes of the definition of C in subsection (1) there is a
“recalculated profit amount” where the following two conditions are
met.

(3) The first condition is that an amount is brought into account in
5determining the group’s profit before tax in respect of a profit or loss
on the disposal of a relevant asset.

(4) The second condition is that—

(a) the relevant proceeds, exceeds

(b) the relevant cost.

(5) 10The amount of the recalculated profit amount is the amount of the
excess mentioned in subsection (4).

(6) In this section “the relevant proceeds” means the amount of income
of a capital nature that is brought into account in determining the
profit or loss mentioned in subsection (3).

(7) 15In this section “the relevant cost” means (subject to subsection (8)) the
amount of expenditure of a capital nature that is brought into
account in determining the profit or loss mentioned in subsection (3).

(8) For the purposes of subsection (7), any adjustment made to the
amount brought into account as mentioned in that subsection is to be
20disregarded where the adjustment is in respect of amounts that—

(a) are otherwise recognised, in the financial statements of the
group for the relevant period of account, as items of profit or
loss, or

(b) were so recognised in the financial statements of the group
25for an earlier period.

(9) References in this section to a relevant asset include part of a relevant
asset.

(10) References in this section to the disposal of a relevant asset do not
include a disposal where the profit or loss (if any) on the disposal is
30of a revenue nature.

(11) The condition in subsection (3) is met even if no amount is brought
into account as mentioned in that subsection if that is because no gain
or loss accrued on the disposal; and subsections (6) to (8) apply
accordingly.

35Treatment of derivative contracts in financial statements of worldwide group
420 Derivative contracts subject to fair value accounting

(1) This section makes provision about the amounts recognised in a
worldwide group’s financial statements for a period of account (“the
relevant period of account”) in respect of derivative contracts.

(2) 40Subsection (3) applies where one or more excluded derivative
contract amounts are recognised in the group’s financial statements
for the relevant period of account as items of profit or loss.

(3) The financial statements are treated for the purposes of this Part
(apart from this section) as if the excluded derivative contract

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amounts were not recognised in the group’s financial statements for
the relevant period of account.

(4) In subsections (2) and (3) “excluded derivative contract amount”
means an amount which would, on the relevant assumptions, be
5excluded from section 597(1) of CTA 2009 (amounts recognised in
determining a company’s profit or loss) as a result of a relevant
provision of the Disregard Regulations.

(5) Subsection (6) applies where, on the relevant assumptions, one or
more amounts (“replacement derivative contract amounts”) would
10be brought into account by members of the group for the purposes of
corporation tax in relevant accounting periods as a result of
regulation 9 or 10 of the Disregard Regulations.

(6) The financial statements are treated for the purposes of this Part
(apart from this section) as if the replacement derivative contract
15amounts were recognised in the group’s financial statements for the
relevant period of account.

(7) Subsection (9) applies if an accounting period in which a
replacement derivative contract amount would, on the relevant
assumptions, be brought into account for the purposes of
20corporation tax contains one or more disregarded periods.

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

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

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

(9) 25Where this subsection applies, the replacement derivative contract
amount mentioned 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).

421 30Derivative contracts subject to fair value accounting: interpretation

(1) In section 420 “the relevant assumptions” means the following
assumptions—

(a) that all members of the group are within the charge to
corporation tax;

(b) 35that elections under regulation 6A of the Disregard
Regulations have effect in relation to each derivative contract
of each member of the group;

(c) that paragraph (5) of regulation 7 of the Disregard
Regulations is of no effect;

(d) 40that where—

(i) a member of the group (“member A”) holds a
derivative contract,

(ii) the group has a hedging relationship between that
derivative contract (on the one hand), and an asset,
45liability, receipt or expense (on the other), and

(iii) the asset, liability, receipt or expense is held, or is
expected to be received or incurred, by a member of
the group other than member A,

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the asset, liability, receipt or expense is held, or is expected to
be received or incurred, by member A;

(e) that the financial statements of members of the group deal
with derivative contracts and hedged items in the same way
5as they are dealt with in the group’s financial statements.

(2) For the purposes of subsection (1)(d) the group has a “hedging
relationship” between a derivative contract (on the one hand) and an
asset, liability, receipt or expense (on the other) if, were those things
held, received or incurred by a single company, the company would
10have a hedging relationship between them.

(3) Regulation 2(5) of the Disregard Regulations (hedging relationships
of a company) applies for the purposes of this section.

(4) For the purposes of section 420 and this section—

(a) “the Disregard Regulations” means the Loan Relationship
15and Derivative Contracts (Disregard and Bringing into
Account of Profits and Losses) Regulations 2004 (S.I. 2004/
3256);

(b) the following are “relevant provisions” of the Disregard
Regulations—

(i) 20regulation 7 (fair value profits or losses arising from
derivative contracts which are currency contracts);

(ii) regulation 8 (profits or losses arising from derivative
contracts which are commodity contracts or debt
contracts);

(iii) 25regulation 9 (profits or losses arising from derivative
contracts which are interest rate contracts).

Effect of group-EBITDA (chargeable gains) election
422 Group-EBITDA (chargeable gains) election

(1) Where a group-EBITDA (chargeable gains) election has effect in
30relation to a period of account of a worldwide group (“the relevant
period of account”), this Chapter applies in relation to the period
subject to this section.

(2) Section 419 (the capital (disposals) adjustment) has effect as if—

(a) the definition of C in subsection (1) of that section did not
35apply, and

(b) instead, C were defined for the purposes of that section as—

(i) the sum of any relevant gains, less

(ii) the sum of any relevant losses,

or, where that is a negative amount, nil.

(3) 40For the purposes of this section, there is a “relevant gain” or “relevant
loss” where condition A or B is met.

(4) Condition A is that a member of the group disposes of a relevant
asset during the relevant period of account.

(5) Condition B is that—

(a) 45a member of the group ceases to be a member of the group
during the relevant period of account, and

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(b) the member held a relevant asset immediately before ceasing
to be a member of the group.

(6) Where condition A is met, the amount of the relevant gain or relevant
loss is the amount of the chargeable gain or allowable loss that
5would, on the assumptions in subsection (8), accrue to the member
on the disposal.

(7) Where condition B is met, the amount of the relevant gain or relevant
loss is the amount of the chargeable gain or allowable loss that
would, on the assumptions in subsection (8), accrue to the member if
10the member—

(a) disposed of the relevant asset immediately before ceasing to
be a member of the group, and

(b) received such consideration for that disposal as it is just and
reasonable to attribute to it, having regard to the
15consideration received by the group for its interests in the
member.

(8) The assumptions mentioned in subsections (6) and (7) are that—

(a) all members of the group are within the charge to corporation
tax;

(b) 20Schedule 7AC to TCGA 1992 (exemptions for disposals by
companies with substantial shareholdings) is of no effect;

(c) Part 2 (double taxation relief) is of no effect.

(9) Where—

(a) the sum of any relevant losses, exceeds

(b) 25the sum of any relevant gains,

the amount of the excess is treated as a relevant loss in relation to the
period of account of the group immediately after the relevant period
of account.

(10) In this section “relevant asset” does not include shares in (or other
30interests giving an entitlement to share in the profits of) a member of
the group.

Effect of interest allowance (alternative calculation) election
423 Capitalised interest brought into account for tax purposes in
accordance with GAAP

(1) 35Where an interest allowance (alternative calculation) election (see
paragraph 16 of Schedule 7A) has effect in relation to a period of
account of a worldwide group (“the relevant period of account”), this
Chapter applies in relation to the period subject to this section.

(2) Section 413 (adjusted net group-interest expense of a worldwide
40group) has effect as if—

(a) subsections (3)(a) and (4)(a) (which relate to capitalised
interest) did not apply in relation to a GAAP-taxable asset or
liability, and

(b) subsections (3)(b) and (4)(b) (which relate to capitalised
45interest written off) did not apply in relation to a GAAP-
taxable asset or liability.

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(3) But subsection (2)(b) of this section is of no effect where the adjusted
net group-interest expense of the group for a period of account
before the relevant period of account included any amount by virtue
of section 413(3)(a) or (4)(a) in respect of the GAAP-taxable asset or
5liability.

(4) For the purposes of this section an asset or liability is “GAAP-
taxable” if any profit or loss for corporation tax purposes in relation
to the asset or liability falls to be calculated in accordance with
generally accepted accounting practice.

(5) 10For the purposes of this section, all members of the group are treated
as within the charge to corporation tax.

424 Employers’ pension contributions

(1) Where an interest allowance (alternative calculation) election has
effect in relation to a period of account of a worldwide group, this
15Chapter applies in relation to the period subject to this section.

(2) The definition of “the group’s profit before tax” in subsection (2) of
section 416 has effect as if references to amounts that are recognised
in the financial statements of the group for the period, as items of
profit or loss, did not include amounts so recognised in respect of
20employer pension contributions.

(3) The group’s profit before tax, as defined in that section, is reduced by
the total of the relief to which members of the group are entitled, by
virtue of sections 196 to 200 of FA 2004, in respect of relevant
employer pension contributions paid during the period.

(4) 25In this section—

(a) “employer pension contributions” means contributions paid
by an employer under a registered pension scheme in respect
of an individual;

(b) employer pension contributions are “relevant” if they are
30paid at a time at which the employer is a member of the
group.

425 Employee share acquisitions

(1) Where an interest allowance (alternative calculation) election has
effect in relation to a period of account of a worldwide group, this
35Chapter applies in relation to the period subject to this section.

(2) The definition of “the group’s profit before tax” in subsection (2) of
section 416 has effect as if references to amounts that are recognised
in the financial statements of the group for the period, as items of
profit or loss, did not include amounts so recognised in respect of
40employee share acquisition arrangements.

(3) The group’s profit before tax, as defined in that section, is reduced by
such amount as, on a just and reasonable basis, reflects the effect on
the group in the period of—

(a) deductions allowed to members of the group under Part 11 of
45CTA 2009 (relief for particular employee share acquisition
schemes) and amounts treated as received by members of the
group under that Part, and

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(b) relief given to members of the group under Part 12 of that Act
(other relief for employee share acquisitions).

(4) In this section “employee share acquisition arrangements” means
arrangements the corporation tax treatment of which is determined
5under Part 11 or 12 of CTA 2009.

(5) For the purposes of this section, all members of the group are treated
as within the charge to corporation tax.

426 Changes in accounting policy

(1) Where an interest allowance (alternative calculation) election has
10effect in relation to a period of account of a worldwide group (“the
relevant period of account”), this Chapter applies in relation to the
period subject to this section.

(2) The financial statements of the group for the relevant period of
account are to be treated as subject to such adjustments as would be
15made to them under the change of accounting policy provisions if the
group were a company that—

(a) was within the charge to corporation tax,

(b) held the assets and owed the liabilities recognised in the
financial statements, to the extent that they are so recognised,
20and

(c) carried on the trades and other activities giving rise to
amounts recognised in the financial statements as items of
profit and loss.

(3) In this section “the change of accounting policy provisions” means—

(a) 25Chapter 14 of Part 3 of CTA 2009 (trading profits);

(b) sections 315 to 319 of that Act (loan relationships);

(c) sections 613 to 615 of that Act (derivative contracts);

(d) Chapter 15 of Part 8 of that Act (intangible fixed assets);

(e) the Loan Relationships and Derivative Contracts (Change of
30Accounting Practice) Regulations 2004 (S.I. 2004/3271S.I. 2004/3271).

(4) For the purposes of subsection (2)—

(a) the change of accounting policy provisions are to be read
subject to the necessary modifications, and

(b) it is to be assumed that any election under the change of
35accounting policy provisions (as applied) has been made.

Effect of interest allowance (non-consolidated investment) election
427 Group interest and group-EBITDA

(1) Where an interest allowance (non-consolidated investment) election
(see paragraph 17 of Schedule 7A) has effect in relation to a period of
40account of a worldwide group, this Chapter applies in relation to the
period subject to this section.

(2) In this section and section 428 (which contains further interpretative
provision)—

(a) “the principal worldwide group” means the worldwide
45group mentioned in subsection (1);