Finance Bill (HC Bill 102)

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(b) the direct or indirect application of the proceeds, amount or
assets for the person’s benefit,

and it does not matter whether the receipt or application is at the
time of the disposal, distribution, winding-up or other circumstances
5or at a later time.

(8) If—

(a) there is a direct receipt or direct application of any proceeds,
amount or assets by or for the benefit of a person (“A”), and

(b) another person (“B”) directly or indirectly owns a percentage
10of the equity in A,

there is, for the purposes of subsection (7), an indirect receipt or
indirect application of that percentage of the proceeds, amount or
assets by or for the benefit of B.

(9) For this purpose the percentage of the equity in A directly or
15indirectly owned by B is to be determined by applying the rules in
sections 1155 to 1157 of CTA 2010 with such modifications (if any) as
may be necessary.

(10) Subsection (7) is not to result in a person being regarded as having a
25% investment in another person merely as a result of their being
20parties to a normal commercial loan.

(11) Any reference in this section, in the case of a person who is a member
of a partnership, to the proceeds, amount or assets of the person
includes the person’s share of the proceeds, amount or assets of the
partnership (apportioning those things between the partners on a
25just and reasonable basis).

465 Attribution of rights and interests

(1) In determining for the purposes of section 464 the investment that a
person (“P”) has in another person, P is to be taken to have all of the
rights and interests of—

(a) 30any person connected with P,

(b) any person who is a member of a partnership, or is connected
with a person who is member of a partnership, of which P is
a member, or

(c) any person who is a member of a partnership, or is connected
35with a person who is a member of a partnership, of which a
person connected with P is a member.

(2) For the purposes of subsection (1)

(a) section 1122 of CTA 2010 (“connected” persons) applies but
as if subsections (7) and (8) of that section were omitted, but

(b) 40a person is not to be regarded as connected with another
person merely as a result of their being parties to a loan that
is a normal commercial loan for the purposes of section 464.

(3) In determining for the purposes of section 464 the investment that a
person (“P”) has in another person (“U”), P is to be taken to have all
45of the rights and interests of a third person (“T”) with whom P acts
together in relation to U.

(4) For this purpose P “acts together” with T in relation to U if (and only
if)—

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(a) for the purpose of influencing the conduct of U’s affairs—

(i) P is able to secure that T acts in accordance with P’s
wishes (or vice versa), or

(ii) T can reasonably be expected to act, or typically acts,
5in accordance with P’s wishes (or vice versa),

(b) P and T are party to an arrangement that it is reasonable to
conclude is designed to affect the value of any equity in U
possessed by T, or

(c) the same person manages some or all of any equity in U
10possessed by P and T.

In paragraphs (b) and (c) references to equity in U are to be read in
accordance with section 464.

(5) But P does not “act together” with T in relation to U under subsection
(4)(c) if—

(a) 15the managing person does so as the operator of different
collective investment schemes, and

(b) the management of the schemes is not coordinated for the
purpose of influencing the conduct of U’s affairs.

(6) For this purpose “collective investment scheme” and “operator” have
20the same meaning as in Part 17 of the Financial Services and Markets
Act 2000 (see sections 235 and 237).

(7) In determining for the purposes of section 464 the investment that a
person (“P”) has in another person (“U”), P is to be taken to have all
of the rights and interests of one or more third persons with whom P
25has entered into a qualifying arrangement in relation to U.

(8) For this purpose P has entered into a qualifying arrangement with
one or more third persons in relation to U if they are parties to an
arrangement concerning U as a result of which, by reference to
shares held, or to be held, by any one or more of them in U, they can
30reasonably be expected to act together—

(a) so as to exert greater influence in relation to U than any one
of them would be able to exert if acting alone, or

(b) otherwise so as to be able to achieve an outcome in relation to
U that, if attempted by any one of them acting alone, would
35be significantly more difficult to achieve.

(9) For this purpose the reference to shares in U includes shares in U that
may be held as a result of the exercise of any right or power and
includes rights or interests in U that are of a similar character to
shares.

(10) 40In this section “arrangement” includes any agreement,
understanding, scheme, transaction or series of transactions
(whether or not legally enforceable).

466 Certain loan relationships etc to be treated as made between related
parties

(1) 45This section—

(a) makes provision for treating a person (“D”) who is not a
related party of another person (“C”) as if they were related

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parties of each other but only in respect of particular
liabilities or transactions, and

(b) is expressed to apply in relation to loan relationships but also
applies (with any necessary modifications) in relation to any
5other financial liability owed to, or any transaction with, C.

(2) If at any time—

(a) D is party to a loan relationship as debtor and C is party to the
relationship as creditor, and

(b) another person (“G”) who is a related party of D provides a
10guarantee, indemnity or other financial assistance in respect
of the liability of D that represents the loan relationship,

D and C are treated for the purposes of this Part as if, in relation to
the loan relationship concerned (and anything done under or for the
purposes of it), they were related parties of each other at that time.

(3) 15Subsection (2) is subject to—

(a) section 415 (qualifying net group-interest expense), and

(b) section 438(3) (infrastructure: interest payable to third parties
etc).

(4) If at any time—

(a) 20D is party to a loan relationship as debtor and C is party to the
relationship as creditor, and

(b) another person (“G”) who is a related party of D indirectly
stands in the position of a creditor as respects the debt in
question by reference to a series of loan relationships or other
25arrangements,

D and C are treated for the purposes of this Part as if, in relation to
the loan relationship concerned (and anything done under or for the
purposes of it), they were related parties of each other at that time.

(5) For the purposes of this section “arrangements” include any
30agreement, understanding, scheme, transaction or series of
transactions (whether or not legally enforceable).

467 Holdings of debt and equity in same proportions

(1) This section applies at any time where—

(a) persons have lent money to another person (“U”),

(b) 35the lenders also have shares or voting power in U,

(c) the amounts each of the lenders has lent stand in the same, or
substantially the same, proportion as the shares or voting
power in U that each of them has, and

(d) for the purposes of section 464 the lenders (taken together)
40have a 25% investment in U.

(2) The lenders are treated for the purposes of this Part as if, in relation
to the loans (and anything done under or for the purposes of them),
they were related parties of U at that time (so far as that would not
otherwise be the case).

(3) 45If—

(a) some or all of the rights under the loan are transferred, and

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(b) the transferred rights are held by, or for the benefit of,
another person (“the transferee”) at any time,

the transferee is treated for the purposes of this Part as if, in relation
to the loan (and anything done under or for the purposes of it), the
5transferee were a related party of U at that time (so far as that would
not otherwise be the case).

(4) This applies whether or not the transferee has any shares or voting
power in U.

(5) For the purposes of this section references to shares in U include
10shares in U that may be held as a result of the exercise of any right or
power and include rights or interests in U that are of a similar
character to shares.

(6) This section applies (with any necessary modifications) in relation to
any other financial liability owed to, or any transaction with, U as it
15applies to loans made to U.

468 Debts with same rights where unrelated parties hold more than 50%

(1) This section applies if—

(a) a person (“D”) is party to a loan relationship as debtor in a
period of account of a worldwide group of which it is a
20member,

(b) a person (“C”) who is party to the loan relationship as
creditor is a related party of D at any time in that period,

(c) there are persons (“the relevant creditors”) other than C who
are parties to the loan relationship, or are parties to other loan
25relationships entered into at the same time, as creditors but
who are not related parties of D at any time in that period,

(d) at all times in that period the rights of the relevant creditors
are rights in relation to at least 50% of the total amount of the
money debt or debts in question, and

(e) 30at all times in that period C and the relevant creditors have
the same rights in relation to the money debt or debts in
question.

(2) D and C are treated for the purposes of this Part as if, in relation to
the loan relationship concerned (and anything done under or for the
35purposes of it), they were not related parties of each other at any time
in that period.

(3) Persons are not to be regarded as having the same rights in relation
to a money debt or debts at any time if—

(a) the terms or conditions on which any of the money is lent and
40which are in force at that time make different provision in
relation to different persons or have, or are capable of having,
a different effect in relation to different persons (whether at
that or any subsequent time),

(b) arrangements are in place at that time the effect of which is
45that, at that or any subsequent time, the rights of some
persons in relation to any of the debts differ, or will or may
differ, from the rights of others in relation to any of the debts,
or

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(c) any other circumstances exist at that time as a result of which
the rights of some persons in relation to any of the debts
cannot reasonably be regarded as being, in substance, the
same rights as others in relation any of the debts at that or any
5subsequent time.

(4) For the purposes of this section—

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

  • 10“different persons” includes persons of a different class or
    description, and

  • “rights” includes powers.

469 Debt restructuring

(1) This section—

(a) 15makes provision for treating a person (“D”) who is a related
party of another person (“C”) as if they were not related
parties of each other but only in respect of particular
liabilities or transactions, and

(b) is expressed to apply in relation to loan relationships but also
20applies (with any necessary modifications) in relation to any
other financial liability owed to, or any transaction with, C.

(2) If—

(a) D is party to a loan relationship as debtor and C is party to the
loan relationship as creditor,

(b) 25D subsequently becomes a related party of C in consequence
of a relevant release of debt, and

(c) before D became a related party of C in consequence of the
release none of the parties to the loan relationship had been
related parties of each other,

30D and C are treated for the purposes of this Part as if, in relation to
the loan relationship (and anything done under or for the purposes
of it), they were not related parties of each other at times on or after
the release.

(3) There is a “relevant release of debt” at any time for the purposes of
35this section if—

(a) a liability to pay an amount under a person’s debtor
relationship is released under the arrangements,

(b) that person is D or a person who is a related party of D at that
time, and

(c) 40immediately before the release, it is reasonable to conclude
that, without the release and any arrangements of which the
release forms part, there would be a material risk that, at
some time within the next 12 months, D or the related party
would be unable to pay its debts.

(4) 45For the purposes of this section “debtor relationship” has the
meaning given by section 302(6) of CTA 2009 (reading the references
in that subsection to a company as references to a person).

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470 Ordinary independent financing arrangements by banks and others

(1) This section applies where—

(a) at any time, a person (“C”) is party to a loan relationship as
creditor and the party to the loan relationship as debtor (“D”)
5is a related party of C as a result of any circumstances, and

(b) the loan relationship is not one to which C is a party at that
time directly or indirectly in consequence of, or otherwise in
connection with, the existence of any of those circumstances.

(2) C and D are treated for the purposes of this Part as if, in relation to
10the loan relationship (and anything done under or for the purposes
of it), they were not related parties of each other at that time.

471 Loans made by relevant public bodies

(1) This section applies at any time where—

(a) a relevant public body (“B”) lends money to a person (“P”),

(b) 15B is a related party of P, and

(c) the realising of a profit is merely incidental to the making of
the loan.

(2) B and P are treated for the purposes of this Part as if, in relation to the
loan (and anything done under or for the purposes of it), they were
20not related parties of each other at that time.

472 Finance leases granted before 20 March 2017

(1) This section applies at any time where an asset is leased by a person
(“A”) to another (“B”) under a lease which is granted before 20 March
2017 and which, in the case of B, is a finance lease.

(2) 25A and B are treated for the purposes of this Part as if, in relation to
the lease (and anything done under or for the purposes of it), they
were not related parties of each other at that time.

Determining the worldwide group
473 Meaning of “a worldwide group”, “ultimate parent” etc

(1) 30In this Part “a worldwide group” means—

(a) any entity which—

(i) is a relevant entity (see section 474), and

(ii) meets the first or second non-consolidation condition
(see subsections (2) and (3)), and

(b) 35each consolidated subsidiary (if any) of the entity mentioned
in paragraph (a).

(2) The first non-consolidation condition is that the entity—

(a) is a member of an IAS group, and

(b) is not a consolidated subsidiary of an entity that—

(i) 40is a relevant entity, and

(ii) itself meets the first non-consolidation condition.

(3) The second non-consolidation condition is that the entity is not a
member of an IAS group.

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(4) In this Part—

(a) references to “a member” of a worldwide group are to an
entity mentioned in subsection (1)(a) or (b);

(b) references to “the ultimate parent” of a worldwide group are
5to the entity mentioned in subsection (1)(a);

(c) references to “a single-company worldwide group” are to a
worldwide group whose only member is its ultimate parent;

(d) references to “a multi-company worldwide group” are to a
worldwide group with two or more members.

(5) 10In this section “IAS group” means a group within the meaning given
by international accounting standards.

474 Interpretation of section 473: “relevant entity”

(1) In section 473 “relevant entity” means—

(a) a company, or

(b) 15an entity the shares or other interests in which are listed on a
recognised stock exchange and are sufficiently widely held.

(2) Shares or other interests in an entity are “sufficiently widely held” if
no participator in the entity holds more than 10% by value of all the
shares or other interests in the entity.

20Section 454 of CTA 2010 (meaning of participator) applies for the
purposes of this subsection.

(3) The following are not relevant entities—

(a) the Crown,

(b) a Minister of the Crown,

(c) 25a government department,

(d) a Northern Ireland department, or

(e) a foreign sovereign power.

475 Meaning of “non-consolidated subsidiary” and “consolidated
subsidiary”

(1) 30An entity (“X”) is a “non-consolidated subsidiary” of another entity
(“Y”) at any time (“the relevant time”) if—

(a) X is a subsidiary of Y at the relevant time, and

(b) if Y were required at the relevant time to measure its
investment in X, it would be required to do so using fair value
35accounting.

(2) An entity (“X”) is a “consolidated subsidiary” of another entity (“Y”)
at any time if, at that time, X is a subsidiary, but not a non-
consolidated subsidiary, of Y.

(3) In this section “subsidiary” has the meaning given by international
40accounting standards.

(4) For the purposes of this section, assume that all entities are subject to
international accounting standards.

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

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476 Continuity of identity of a worldwide group through time

(1) This section applies for the purpose of determining whether a group
of entities that constitutes a worldwide group at any time (“Time 2”)
is the same worldwide group as a group of entities that constitutes a
5worldwide group at an earlier time (“Time 1”).

(2) The group at Time 2 is the same worldwide group as the group at
Time 1 if and only if the entity that is the ultimate parent of the group
at Time 2—

(a) was the ultimate parent of the group at Time 1, and

(b) 10was the ultimate parent of a worldwide group at all times
between Time 1 and Time 2.

477 Treatment of stapled entities

(1) This section applies where two or more entities—

(a) would, apart from this section, each be the ultimate parent of
15a worldwide group, and

(b) are stapled to each other.

(2) This Part has effect as if—

(a) the entities were consolidated subsidiaries of another entity
(the “deemed parent”), and

(b) 20the deemed parent fell within section 473(1)(a) (conditions
for being the ultimate parent of a worldwide group).

(3) For the purpose of this section an entity (“entity A”) is “stapled” to
another entity (“entity B”) if, in consequence of the nature of the
rights attaching to the shares or other interests in entity A (including
25any terms or conditions attaching to the right to transfer the
interests), it is necessary or advantageous for a person who has,
disposes of or acquires shares or other interests in entity A also to
have, dispose of or acquire shares or other interests in entity B.

478 Treatment of business combinations

(1) 30This section applies where two entities—

(a) would, apart from this section, each be the ultimate parent of
a worldwide group, and

(b) are treated under international accounting standards as a
single economic entity by reason of being a business
35combination achieved by contract.

(2) This Part has effect as if—

(a) the two entities were consolidated subsidiaries of another
entity (the “deemed parent”), and

(b) the deemed parent fell within section 473(1)(a) (conditions
40for being the ultimate parent of a worldwide group).

(3) In this section “business combination” has the meaning given by
international accounting standards.

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Financial statements and periods of account
479 “Financial statements” of a worldwide group

(1) References in this Part to “financial statements” of a worldwide
group for a period are (subject to subsection (2)) to consolidated
5financial statements of the worldwide group’s ultimate parent and
its subsidiaries in respect of the period.

(2) Where the worldwide group is at all times during the period a single-
company worldwide group, the references are to financial
statements of the ultimate parent in respect of the period.

(3) 10The basic rule is that the references mentioned in subsections (1) and
(2) are to financial statements that are drawn up by or on behalf of
the ultimate parent.

(4) But see—

(a) section 481 for provision under which, in specified
15circumstances, financial statements of a worldwide group are
treated as having been drawn up in accordance with different
accounting standards from those in accordance with which
they are drawn up by or on behalf of the ultimate parent;

(b) section 482 for provision under which, in specified
20circumstances, financial statements of a worldwide group are
treated as consolidating different subsidiaries from those
consolidated in financial statements drawn up by or on
behalf of the ultimate parent;

(c) section 483 for provision under which, in specified
25circumstances, financial statements of a worldwide group are
treated as having been drawn up where the ultimate parent
has drawn up consolidated financial statements covering
more than one worldwide group;

(d) sections 484 to 486 for provision under which, where
30financial statements of a worldwide group are not drawn up
by or on behalf of the ultimate parent, financial statements of
the group are treated as having been drawn up.

(5) See also section 487 (under which financial statements drawn up by
or on behalf of an entity, but for too long a period or too late, are
35ignored for the purposes of this Part).

480 “Period of account” of worldwide group

References in this Part to a “period of account” of a worldwide group
are to—

(a) a period in respect of which financial statements of the group
40are drawn up by or on behalf of the ultimate parent, or

(b) a period in respect of which financial statements of the group
are treated as drawn up for the purposes of this section
(whether under any of sections 481 to 485 or under any other
enactment).

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481 Actual financial statements not drawn up on acceptable principles

(1) This section applies where financial statements of a worldwide
group for a period drawn up by or on behalf of the ultimate parent
are not drawn up on acceptable principles.

(2) 5For the purposes of this Part (apart from this section)—

(a) the financial statements mentioned in subsection (1) are to be
ignored, and

(b) IAS financial statements of the worldwide group are treated
as having been drawn up in respect of the period.

(3) 10For the purposes of this Chapter financial statements are “drawn up
on acceptable principles” only if condition A, B, C or D is met.

(4) Condition A is that the financial statements are IAS financial
statements.

(5) Condition B is that the amounts recognised in the financial
15statements are not materially different from those that would be
recognised in IAS financial statements of the worldwide group, if
such statements were drawn up.

(6) Condition C is that the financial statements are drawn up in
accordance with UK generally accepted accounting practice.

(7) 20Condition D is that the financial statements are drawn up in
accordance with generally accepted accounting principles and
practice of one of the following territories—

(a) Canada;

(b) China;

(c) 25India;

(d) Japan;

(e) South Korea;

(f) the United States of America.

(8) The Commissioners may by regulations amend this section so as to
30alter the circumstances in which financial statements are “drawn up
on acceptable principles” for the purposes of this Chapter.

482 Actual financial statements drawn up on acceptable principles but
consolidating wrong subsidiaries

(1) This section applies where financial statements of a worldwide
35group for a period drawn up by or on behalf of the ultimate parent
are drawn up on acceptable principles but—

(a) do not consolidate one or more entities that are IAS
subsidiaries, or

(b) consolidate one or more entities that are not IAS subsidiaries.

(2) 40In this section “IAS subsidiary”, in relation to a period, means an
entity which would be required to be consolidated with those of the
ultimate parent in IAS financial statements of the group for the
period.

(3) For the purposes of this Part (apart from this section)—