Finance Bill (HC Bill 116)

(g) a deduction under section 1217CF of CTA 2009 (video games
tax relief);

(h) a deduction under section 1217H of CTA 2009 (relief in
relation to theatrical productions);

(i) 5a deduction under section 1217RD of CTA 2009 (orchestra tax
relief);

(j) a deduction under section 1218ZCE of CTA 2009 (museums
and galleries exhibition tax relief);

(k) a qualifying charitable donation (whether made in the
10accounting period mentioned in section 406(2) or an earlier
one);

(l) a deduction under section 357A of CTA 2010 (profits from
patents etc chargeable at lower rate of corporation tax).

(4) An amount is an excluded amount for the purposes of condition B in
15section 406 if it is an allowable loss for the purposes of TCGA 1992.

408 Excluded relevant intangibles debits and excluded relevant
intangibles credits

(1) For the purposes of section 407 (and this section)—

(a) a debit is a “relevant intangibles debit” if it is brought into
20account under a provision of Part 8 of CTA 2009 (intangible
fixed assets) that is listed in column 1 of the following table;

(b) a relevant intangibles debit is “excluded” to the extent
indicated in the corresponding entry in column 2 of the table.

(2) For the purposes of section 407 (and this section)—

(a) a credit is a “relevant intangibles credit” if it is brought into
35account under a provision of Part 8 of CTA 2009 (intangible
fixed assets) that is listed in column 1 of the following table;

(b) a relevant intangibles credit is “excluded” to the extent
indicated in the corresponding entry in column 2 of the table.

(3) In the table in subsection (2)—

(a) “tax written-down value” has the same meaning as in Part 8
of CTA 2009 (see Chapter 5 of that Part);

(b) “the cost of the asset” has the same meaning as in section 736
15of that Act.

409 Double taxation relief

(1) This section applies where—

(a) apart from this section, an amount of income (“the relevant
amount”) would meet condition A or B in section 406 in
20relation to a relevant accounting period of a company, and

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

(2) 25The relevant amount is treated, for the purposes of section 406(2)
(meaning of “adjusted corporation tax earnings”) as not meeting the
condition 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
30“notional untaxed income” is—

CHAPTER 7 Group-interest and group-EBITDA

Group-interest

410 Net group-interest expense

(1) 5For the purposes of this Part the “net group-interest expense” of a
worldwide group for a period of account of the group (“the relevant
period of account”) is—

(2) Subsection (3) applies where—

(a) a relevant expense amount (“the capitalised expense”) is
brought into account in financial statements of the group
(whether for the relevant period of account or any earlier
20period) in determining the carrying value 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.

(3) A in subsection (1) is treated as including so much of the amount
25written down as is attributable to the capitalised expense.

(4) Subsection (5) applies where—

(a) a relevant income amount (“the capitalised income”) is
brought into account in financial statements of the group
(whether for the relevant period of account or any earlier
30period) in determining the carrying value 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
35in the amount written down that is attributable to the capitalised
income.

(6) See—

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

• 40section 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 amount” and “relevant income amount”

(1) In this Chapter “relevant expense amount” means (subject to
subsection (3)) an amount in respect of any of the following—

(a) interest payable under a loan relationship;

(b) 5expenses ancillary to a loan relationship;

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

(i) exchange losses, and

(ii) impairment losses;

(d) 10dividends payable in respect of preference shares accounted
for as a financial liability;

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

(i) exchanges losses,

(ii) 15impairment losses, and

(iii) losses 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
20member of the worldwide group);

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

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

(h) 25financing charges relating to debt factoring;

(i) financing charges implicit in payments made under a service
concession 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
30relationship;

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

(l) manufactured interest payable;

(m) financing charges in respect of the advance under a debtor
35repo 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
40of 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 amount” means (subject to
subsection (3)) an amount in respect of any of the following—

(a) 45interest 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) dividends 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) 5exchange gains,

(ii) the 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
10capital structure of the worldwide group (or any
member of the worldwide group);

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

(f) financing income relating to debt factoring;

(g) 15financing income implicit in amounts received under a
service 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) 20alternative finance return receivable under alternative
finance arrangements;

(j) manufactured interest receivable;

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

(l) 25financing income so far as it is made up of amounts which—

(i) are 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
30within the charge to corporation tax.

(3) In this Chapter—

(a) “relevant expense amount” does not include an amount
payable under a pension scheme;

(b) “relevant income amount” does not include an amount
35receivable under a pension scheme.

(4) In subsection (3) “pension scheme” has the meaning given by section
150(1) of FA 2004.

412 Section 411: interpretation

(1) For the purposes of section 411(1)(b), expenses are “ancillary” to a
40loan relationship if and only if they are incurred directly—

(a) in 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
45loan relationship.

(2) For 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) currency;

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

(e) 5any other underlying subject matter which is—

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

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

(3) 10Whether 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
company enters into or acquires the contract.

(4) For the purposes of section 411(1)(f) expenses are “ancillary” to a
15relevant derivative contract or related transaction if and only if they
are incurred directly—

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

(b) in entering into or giving effect to, or attempting to enter into
20or give effect to, the related transaction,

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

(d) in taking steps to secure the receipt of payments under the
derivative contract or in accordance with the related
25transaction.

(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) 30section 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—

(a) 35in subsections (1)(c) and (2)(b), “related transaction”,
“exchange loss” and “exchange gain” have the same meaning
as in Parts 5 and 6 of CTA 2009 (see sections 304 and 475 of
that Act);

(b) in subsections (1)(e) and (2)(d), “related transaction”,
40“exchange loss” and “exchange gain” have the same meaning
as in Part 7 of that Act (see sections 596 and 705 of that Act).

(7) In section 411 and this section—

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

• 45“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
  Part 6 of CTA 2009 (see section 544 of that Act);

Finance BillPage 337

• “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);

• 5“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
  10Chapter 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) 15For 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))—

• 20A 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
25“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) a relevant expense amount that is brought into account in the
30financial 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) 35a relevant expense amount that—

(i) in 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) 40is 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
account if the member were within the charge to
corporation tax;

(d) 45a relevant income amount 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) 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
credits not required to be brought into account), or

(ii) 5would 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) a relevant income amount that is brought into account in the
10financial 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(3)
(capitalised expense written off);

(c) 15a relevant income amount that—

(i) in 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) 20is 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
account if the member were within the charge to
corporation tax;

(d) 25a relevant expense amount 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) is prevented from being brought into account for the
purposes of corporation tax by a member of the group
30by section 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
charge to corporation tax;

(e) a relevant expense amount that is recognised in the financial
35statements 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
of preference shares, and

(ii) those shares are recognised as a liability in the
40financial 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
do not include amounts so brought into account as the result of
writing off any part of an amount which was itself so brought into
45account.

(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
in equity), or

(b) regulation 3A of the Taxation of Regulatory Capital
50Securities Regulations 2013 (S.I. 2013/3209S.I. 2013/3209) (amounts
recognised in equity).

414 Qualifying net group-interest expense

(1) For 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))—

5

(2) 10Where the amount determined under subsection (1) is negative, “the
qualifying net group-interest expense” of the group for the period is
nil.

(3) In this section “downward adjustment” means a relevant expense
amount that meets the condition in subsection (4), so far as it relates
15to—

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

(b) results-dependent securities, or

(c) 20equity notes.

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

(a) is 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
25section 413 (adjusted net group-interest expense), or

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

(5) In a case where—

(a) the person mentioned in subsection (3)(a) is not a related
30party 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
mentioned in subsection (3)(a) is owed to a person who is not
a related party of a member of the group,

35the 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 Section 414: interpretation

(1) For the purposes of section 414 a person is treated as not being a
40related 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
party of the member by virtue only of section 466(2) (parties
to loan relationship treated as related parties by virtue of
45financial 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
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—