Finance Bill (HC Bill 102)

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(3) In applying the provisions of this Part—

(a) the property rental business company and the residual
business company are at all times to be regarded as separate
members of the same worldwide group (despite the
5provisions of section 541(3) of CTA 2010), but

(b) in the case of the application of section 433 (qualifying
infrastructure company), the property rental business
company and the residual business company are to be
regarded as being one company (and any election (or its
10revocation) is, therefore, regarded as made by each
company).

(4) This Part has effect as if—

(a) section 534(1) and (2) of CTA 2010, and

(b) section 535(1) and (5) of CTA 2010,

15do not apply in relation to the property rental business company for
the accounting period.

(5) The allocated disallowance for the property rental business company
(if any) for the accounting period must be limited to such amount as
secures that section 530(3)(b) or (5) of CTA 2010 (distribution of
20profits not required if would result in unlawful distribution) do not
apply.

(6) This subsection—

(a) sets out steps to be taken in order to facilitate the operation of
Chapter 2 (disallowance and reactivation of tax-interest
25expense amounts), and

(b) has effect in relation to an accounting period of the residual
business company whether or not it has net tax-interest
expense referable to that period.

If the residual business company does not have net tax-interest
30expense referable to that period, it is treated for the purposes of steps
1 to 4 in the rest of this subsection as if it had instead a nil amount of
tax-interest expense referable to that period.

Step 1

Determine the maximum amount that could be the allocated
35disallowance for the property rental business company for the
accounting period if subsection (5) were ignored and the maximum
amount that could be the allocated disallowance for the residual
business company for the accounting period (ignoring step 5).

The sum of those maximum amounts is referred to in this subsection
40as “the total REIT expenses”.

Step 2

Determine the amount (if any) that is the allocated disallowance for
the property rental business for the accounting period, applying
subsection (5) and all other rules in this Part.

45This amount is referred to in this subsection as “the actual disallowed
amount”.

Step 3

Deduct from the total REIT expenses the actual disallowed amount.

Step 4

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Determine whether so much of the total REIT expenses as remains
after step 3 exceeds the net tax-interest expense of the residual
business company referable to the accounting period (ignoring step
55).

Step 5

If the application of step 4 produces an excess, the residual business
company is required to bring into account in the accounting period
matching tax-interest expense and income amounts in accordance
10with the following provisions of this section.

(7) The residual business company—

(a) must bring a tax-interest expense amount equal to the excess
into account in the accounting period, and

(b) must bring a tax-interest income amount equal to the excess
15into account in the accounting period,

but nothing in this subsection affects any calculation required under
any other provision of this Part in relation to the accounting period
of the residual business company.

(8) The bringing into account of a tax-interest expense amount under
20subsection (7) is subject to the operation of the other provisions of
this Part (which may result in some or all of the amount not being
brought into account).

(9) The tax-interest expense amount under subsection (7) must be
matched in amount and nature to an amount comprised in the total
25REIT expenses.

Section 377(2) to (4) (which, subject to an election made by the
company, set out the order in which amounts are left out of account)
apply for the purposes of this subsection.

(10) The tax-interest expense or income amounts under subsection (7) are
30treated as being of the same nature as each other.

(11) An interest restriction return—

(a) must, in relation to any company carrying on residual
business or property rental business, specify that fact, and

(b) must contain information about how the return has taken
35into account the effect of this section.

(12) Expressions which are used in this section and in Part 12 of CTA 2010
have the same meaning in this section as they have in that Part.

Insurance companies etc
453 Insurance entities

(1) 40This section applies where—

(a) an insurance entity is a member of a worldwide group,

(b) the entity has a subsidiary (“S”) which it holds as a portfolio
investment, and

(c) apart from this section, S would be a member of the group.

(2) 45For the purposes of this Part—

(a) the group does not include S (or its subsidiaries), and

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(b) accordingly, none of those entities is regarded as a
consolidated subsidiary of any member of the group.

(3) For the purposes of this section an insurance entity holds an interest
in an entity as “a portfolio investment” if—

(a) 5the insurance entity holds the interest as an investment, and

(b) the insurance entity judges the value that the interest has to it
wholly or mainly by reference to the market value of the
interest.

(4) In this section—

  • 10“insurance entity” means—

    (a)

    an insurance company,

    (b)

    a friendly society within the meaning of Part 3 of FA
    2012 (see section 172), or

    (c)

    a body corporate which carries on underwriting
    15business as a member of Lloyd’s, and

  • “subsidiary” has the meaning given by international accounting
    standards.

454 Members of Lloyd’s

In the case of a body corporate carrying on underwriting business as
20a member of Lloyd’s—

(a) any reference in this Part to an amount being brought into
account under Part 3 of CTA 2009 as a result of section 297 or
573 of that Act is to be read as a reference to its being brought
into account under that Part as a result of section 219 of FA
251994, and

(b) any reference in this Part to a derivative contract is to be read
as if subsection (3) of section 226 of FA 1994 (which provides
that relevant contracts forming part of a premium trust fund
are not derivative contracts) were omitted.

30Shipping companies
455 Shipping companies subject to tonnage tax

(1) This section applies in relation to an accounting period of a tonnage
tax company.

(2) The company’s tonnage tax profits for the accounting period are
35treated as nil for the purpose of calculating the company’s adjusted
corporation tax earnings for the accounting period under section
406(2).

(3) In this section “tonnage tax company” and “tonnage tax profits” have
the same meaning as in Schedule 22 to FA 2000 (see paragraphs 2 to
405).

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Fair value accounting
456 Creditor relationships of companies determined on basis of fair value
accounting

(1) A company may elect for all of its creditor relationships which are
5dealt with on the basis of fair value accounting (“fair-value creditor
relationships”) to be subject to the provision made by this section for
all of its accounting periods.

(2) For the purpose of calculating under this Part—

(a) tax-interest expense amounts of the company, and

(b) 10tax-interest income amounts of the company,

the relevant loan relationship debits and relevant loan relationship
credits in respect of the company’s fair-value creditor relationships
are instead to be determined for the accounting periods on an
amortised cost basis of accounting.

(3) 15If—

(a) a company has a hedging relationship between a relevant
contract (“the hedging instrument”) and the asset
representing a loan relationship subject to the election, and

(b) the loan relationship is dealt with in the company’s accounts
20on the basis of fair value accounting,

it is to be assumed in applying the amortised cost basis of accounting
that the hedging instrument has where possible been designated for
accounting purposes as a fair value hedge of the loan relationship.

(4) An election under this section—

(a) 25must be made before the end of 12 months from the end of the
relevant accounting period,

(b) has effect for that accounting period and all subsequent
accounting periods, and

(c) is irrevocable.

(5) 30For this purpose “relevant accounting period” means—

(a) the first accounting period in which the company has a fair-
value creditor relationship, or

(b) if that accounting period has ended before 1 April 2017, the
first accounting period in relation to which any provision of
35this Part applies.

(6) In this section “amortised cost basis of accounting”, in relation to an
accounting period, has the same meaning as in Part 5 of CTA 2009
(see section 313), but, in the case of creditor relationships relating to
insurance activities, as if that basis of accounting required
40recognition only of—

(a) interest accrued for the period in respect of the creditor
relationships, or

(b) if the creditor relationships arise as a result of section 490 of
CTA 2009 (OEICs, unit trusts and offshore funds), amounts
45that can reasonably be regarded as equating to interest
accrued for the period in respect of those relationships.

(7) In subsection (6) “creditor relationships relating to insurance
activities” means creditor relationships which—

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(a) are held by an insurance company, a friendly society within
the meaning of Part 3 of FA 2012 (see section 172) or a body
corporate which carries on underwriting business as a
member of Lloyd’s, or

(b) 5are held in connection with the regulation of underwriting
business carried on by members of Lloyd’s.

(8) The Commissioners may by regulations amend the definition of
“amortised cost basis of accounting” in this section.

(9) Other expressions which are used in this section and in Part 5 of CTA
102009 have the same meaning in this section as they have in that Part.

457 Elections under section 456: deemed debits and credits

(1) This section applies if—

(a) as a result of an election under section 456, the tax-interest
expense amounts of a company include notional debits for an
15accounting period,

(b) the worldwide group of which the company is a member is
subject to interest restrictions for a period of account, and

(c) the total disallowed amount for the period of account consists
of or includes the notional debits.

(2) 20In order to facilitate the operation of Chapter 2 (disallowance and
reactivation of tax-interest expense amounts)—

(a) the company must bring a debit equal to the amount of the
notional debits into account in the accounting period, and

(b) the company must bring a credit equal to the amount of the
25notional debits into account in the accounting period,

but nothing in this subsection affects any calculation required under
any other provision of this Part in relation to the accounting period
of the company.

(3) The bringing into account of a debit under subsection (2)(a) is subject
30to the operation of the other provisions of this Part (which may result
in some or all of the debit not being brought into account).

(4) The debits and credits under subsection (2) are of the same nature as
the notional debits that give rise to them.

(5) For the purposes of this section a debit is a “notional debit” if the
35debit is created as a result of the determination required by the
election or so far as the amount of the debit is increased as a result of
that determination.

Exemption for tax-interest expense or income amounts
458 Co-operative and community benefit societies etc

(1) 40This section applies where—

(a) apart from this section, an amount would be a tax-interest
expense amount or tax-interest income amount of a company
as a result of meeting condition A in section 382 or 385 (loan
relationships), and

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(b) the amount meets that condition only because of section 499
of CTA 2009 (certain sums payable by co-operative and
community benefit societies or UK agricultural or fishing co-
operatives treated as interest under loan relationship).

(2) 5The amount is treated as not being a tax-interest expense amount or
tax-interest income amount of the company.

459 Charities

(1) This section applies where—

(a) apart from this section, an amount would be a tax-interest
10expense amount of a company as a result of meeting
condition A in section 382 (loan relationship debits),

(b) the creditor is a charity,

(c) the company is a wholly-owned subsidiary of the charity,
and

(d) 15the charitable gift condition is met at all times during the
accounting period in which the amount is (or apart from this
Part would be) brought into account.

(2) The amount is treated as not being a tax-interest expense amount of
the company.

(3) 20For the purposes of this section the “charitable gift condition” is met
at any time at which, were the company to make a donation to the
charity at that time, it would be a qualifying charitable donation (see
section 190 of CTA 2010).

(4) In this section—

  • 25“charity” has the same meaning as in Chapter 2 of Part 6 of CTA
    2010 (see section 202 of that Act as read with Schedule 6 to FA
    2010), and

  • “the creditor” means the person who is party to the loan
    relationship in question as creditor.

30Leases
460 Long funding operating leases and finance leases

(1) In calculating a company’s adjusted corporation tax earnings for an
accounting period under section 406(2), each of the following
amounts is to be ignored—

(a) 35the amount of a deduction under section 363 of CTA 2010
(lessor under long funding operating lease);

(b) the amount by which a deduction is reduced under section
379 of CTA 2010 (lessee under long funding operating lease);

(c) the capital component of the company’s rental earnings
40under a finance lease which is not a long funding finance
lease;

(d) the amount of depreciation in respect of any asset leased to
the company under a finance lease which is not a long
funding finance lease.

(2) 45The definition of “relevant capital expenditure” in section 417(2)
includes the amount of depreciation in respect of any relevant asset

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leased under a finance lease for some or all of the relevant period of
account to a company that is a member of the worldwide group in
question.

(3) For the purposes of this section the capital component of a
5company’s rental earnings under a finance lease is so much of those
earnings as do not constitute tax-interest income amounts of the
company.

(4) For the purposes of this section the amount of depreciation in respect
of any asset leased to a company under a finance lease is the amount
10which, in accordance with generally accepted accounting practice,
falls (or would fall) to be shown as depreciation in respect of the asset
in the applicable accounts.

(5) In this section “the applicable accounts” are—

(a) in a case within subsection (1)(d), the company’s accounts for
15any period, and

(b) in a case within subsection (2), the financial statements of the
worldwide group for the relevant period of account in
question.

(6) In this section “long funding finance lease” means a finance lease
20which is a long funding lease (within the meaning of section 70G of
CAA 2001).

CHAPTER 10 Anti-avoidance
461 Counteracting effect of avoidance arrangements

(1) 25Any tax advantage that would (in the absence of this section) arise
from relevant avoidance arrangements is to be counteracted by the
making of such adjustments as are just and reasonable.

(2) Any adjustments required to be made under this section (whether or
not by an officer of Revenue and Customs) may be made by way of
30an assessment, the modification of an assessment, amendment or
disallowance of a claim or otherwise.

(3) For the purposes of this section arrangements are “relevant
avoidance arrangements” if conditions A and B are met.

(4) Condition A is that the main purpose, or one of the main purposes,
35of the arrangements is to enable a company to obtain a tax
advantage.

(5) Condition B is that the tax advantage is attributable (or partly
attributable) to any company—

(a) not leaving tax-interest expense amounts out of account that
40it otherwise would have left out of account,

(b) leaving tax-interest expense amounts out of account that are
lower than they otherwise would have been,

(c) leaving tax-interest expense amounts out of account in an
accounting period other than that in which it otherwise
45would have left them out of account,

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(d) bringing tax-interest expense amounts into account that it
otherwise would not have brought into account,

(e) bringing tax-interest expense amounts into account that are
higher than they otherwise would have been, or

(f) 5bringing tax-interest expense amounts into account in an
accounting period other than that in which it otherwise
would have brought them into account.

(6) In subsection (5)

(a) references to leaving amounts out of account are to leaving
10them out of account under this Part;

(b) references to bringing amounts into account are to bringing
them into account under this Part.

(7) In this section—

  • “arrangements” includes any agreement, understanding,
    15scheme, transaction or series of transactions (whether or not
    legally enforceable), and

  • “tax advantage” includes—

    (a)

    relief or increased relief from tax,

    (b)

    repayment or increased repayment of tax,

    (c)

    20avoidance or reduction of a charge to tax or an
    assessment to tax,

    (d)

    avoidance of a possible assessment to tax,

    (e)

    deferral of a payment of tax or advancement of a
    repayment of tax, and

    (f)

    25avoidance of an obligation to deduct or account for
    tax.

(8) For the purposes of the definition of “tax advantage” any reference
to tax includes—

(a) any amount chargeable as if it were corporation tax or treated
30as if it were corporation tax, and

(b) diverted profits tax.

CHAPTER 11 Interpretation etc
Related parties
462 35Expressions relating to “related parties”: introduction

(1) Section 463 sets out the circumstances in which a person is a related
party of another person for the purposes of this Part.

(2) That section—

(a) applies generally in relation to any amount, and

(b) 40is supplemented by sections 464 and 465 (which contain
provisions that have effect for the purposes of that section).

(3) Sections 466 and 467 make provision for treating persons as if they
were related parties of each other but only in relation to certain
matters.

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(4) Sections 468 to 472

(a) make provision for treating persons as if they were not
related parties of each other but only in relation to certain
matters, and

(b) 5take priority over sections 466 and 467.

463 Whether a person is generally a “related party” of another

(1) For the purposes of this Part a person (“A”) is a “related party” of
another person (“B”)—

(a) throughout any period for which A and B are consolidated
10for accounting purposes,

(b) on any day on which the participation condition is met in
relation to them, or

(c) on any day on which the 25% investment condition is met in
relation to them.

(2) 15A and B are consolidated for accounting purposes for a period if—

(a) their financial results for a period are required to be
comprised in group accounts,

(b) their financial results for the period would be required to be
comprised in group accounts but for the application of an
20exemption, or

(c) their financial results for a period are in fact comprised in
group accounts.

(3) In subsection (2) “group accounts” means accounts prepared
under—

(a) 25section 399 of the Companies Act 2006, or

(b) any corresponding provision of the law of a territory outside
the United Kingdom.

(4) The participation condition is met in relation to A and B (“the
relevant parties”) on a day if, within the period of 6 months
30beginning or ending with that day—

(a) one of the relevant parties directly or indirectly participates
in the management, control or capital of the other, or

(b) the same person or persons directly or indirectly participate
in the management, control or capital of each of the relevant
35parties.

(5) For the interpretation of subsection (4), see sections 157(1), 158(4),
159(1) and 160(1) (which have the effect that references in that
subsection to direct or indirect participation are to be read in
accordance with provisions of Chapter 2 of Part 4).

(6) 40If one of the relevant parties is a securitisation company within the
meaning of Chapter 4 of Part 13 of CTA 2010, the relevant parties are
not to be regarded as related parties of each other as a result of
subsection (4) merely by reference to the fact that—

(a) the securitisation company is held by a trustee of a
45settlement, and

(b) the other relevant party is a settlor in relation to that
settlement.

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(7) The 25% investment condition is met in relation to A and B if—

(a) one of them has a 25% investment in the other, or

(b) a third person has a 25% investment in each of them.

(8) Sections 464 and 465 apply for the purpose of determining whether
5a person has a “25% investment” in another person.

464 Meaning of “25% investment”

(1) A person (“P”) has a 25% investment in another person (“C”) if—

(a) P possesses or is entitled to acquire 25% or more of the voting
power in C,

(b) 10in the event of a disposal of the whole of the equity in C, P
would receive 25% or more of the proceeds,

(c) in the event that the income in respect of the equity in C were
distributed among the equity holders in C, P would receive
25% or more of the amount so distributed, or

(d) 15in the event of a winding-up of C or in any other
circumstances, P would receive 25% or more of C’s assets
which would then be available for distribution among the
equity holders in C in respect of the equity in C.

(2) In this section references to the equity in C are to—

(a) 20the shares in C other than restricted preference shares, or

(b) loans to C other than normal commercial loans.

(3) For this purpose “shares in C” includes—

(a) stock, and

(b) any other interests of members in C.

(4) 25For the purposes of this section a person is an equity holder in C if
the person possesses any of the equity in C.

(5) For the purposes of this section—

  • “normal commercial loan” means a loan which is a normal
    commercial loan for the purposes of section 158(1)(b) or
    30159(4)(b) of CTA 2010, and

  • “restricted preference shares” means shares which are restricted
    preference shares for the purposes of section 160 of CTA
    2010.

(6) In applying for the purposes of this section the definitions of “normal
35commercial loan” and “restricted preference shares” in a case
where—

(a) C is not a company, or

(b) C is a company which does not have share capital,

sections 160(2) to (7) and 161 to 164 of CTA 2010 (and any other
40relevant provisions of that Act) have effect with the necessary
modifications.

(7) In this section references to a person receiving any proceeds, amount
or assets include—

(a) the direct or indirect receipt of the proceeds, amount or
45assets, and