Finance (No.2) Bill - continued        House of Commons
PART III, INCOME TAX, CORPORATION TAX AND CAPITAL GAINS TAX - continued

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Transfer pricing, FOREX and financial instruments
New regime for transfer pricing etc.     106. - (1) For sections 770 to 773 of the Taxes Act 1988 (transfer pricing provisions) there shall be substituted the following section-
 
 
"Provision not at arm's length.     770A. Schedule 28AA (which deals with provision made or imposed otherwise than at arm's length) shall have effect."
 
      (2) After Schedule 28A to that Act there shall be inserted, as Schedule 28AA to that Act, the Schedule set out in Schedule 16 to this Act.
 
      (3) In the Finance Act 1993-
 
 
    (a) in sections 136(7) and (8) and 136A(5) (application of arm's length test in computing foreign exchange gains and losses), for the words "has been treated under section 770 of", in each place where they occur, there shall be substituted "falls to be treated in accordance with Schedule 28AA to"; and
 
    (b) in section 136A(6), for "has at any time in that accrual period been treated under section 770 of" there shall be substituted "falls in relation to any time in that accrual period to be treated in accordance with Schedule 28AA to".
      (4) In the Finance Act 1996-
 
 
    (a) in section 100(3) (imputed interest on loan relationships), for the words from "which, in" to "of those sections" there shall be substituted "which, in pursuance of Schedule 28AA to the Taxes Act 1988 (provision not at arm's length), falls to be treated"; and
 
    (b) in paragraph 16 of Schedule 9 (imputed interest)-
 
      (i) in sub-paragraph (1), for the words from "sections 770" to "that Act" there shall be substituted "Schedule 28AA to the Taxes Act 1988 (provision not at arm's length)"; and
 
      (ii) in sub-paragraph (2), for "Those sections" there shall be substituted "That Schedule".
      (5) Subject to subsection (6) below, this section and Schedule 16 to this Act have effect (in relation to provision made or imposed at any time)-
 
 
    (a) for the purposes of corporation tax, as respects accounting periods ending on or after the day appointed under section 199 of the Finance Act 1994 for the purposes of Chapter III of Part IV of that Act (self-assessment management provisions); and
 
    (b) for the purposes of income tax, as respects any year of assessment ending on or after that day.
      (6) The Schedule 28AA to the Taxes Act 1988 that is inserted by subsection (2) above shall not, in the case of any potentially advantaged person, apply as respects the consequences at any time of the difference between the actual provision and the arm's length provision if-
 
 
    (a) that time falls before 17th March 2001;
 
    (b) the actual provision is a provision made or imposed by means of contractual arrangements entered into by that person before 17th March 1998;
 
    (c) the requirements of paragraph 1(1)(b) of Schedule 28AA to that Act (control requirements) are satisfied in the case of the actual provision and that person by reference only to paragraph 4(2)(b) of that Schedule (joint ventures etc.);
 
    (d) the rights and obligations of that person by virtue of the actual provision are not ones that have been varied or continued in pursuance of any transaction entered into by that person in the period between 17th March 1998 and that time; and
 
    (e) that person is not a party, and has not been a party, to any transaction by virtue of which he could during that period have secured the variation or termination of those rights and obligations.
      (7) Expressions used in subsection (6) above and in Schedule 28AA to the Taxes Act 1988 have the same meanings in that subsection as in that Schedule.
 
Abolition of requirements for direction.     107. - (1) The following provisions of Chapter II of Part II of the Finance Act 1993 (exchange gains and losses) shall cease to have effect-
 
 
    (a) in section 135(1), paragraph (d) (which makes the giving of a direction a condition of disregarding an exchange loss where it is the main benefit), and the word "and" immediately preceding that paragraph;
 
    (b) in section 136, the following provisions (which make the giving of a direction by the Board a condition of disregarding or reducing an exchange loss where there is a transaction that is not on arm's length terms)-
 
      (i) paragraph (d) of subsection (1) and the word "and" immediately preceding that paragraph; and
 
      (ii) in each of subsections (5) and (9), the words after paragraph (b);
 
    (c) in each of subsections (3) and (7) of section 136A, the words after paragraph (b) (which make the giving of a direction by the Board a condition of reducing an initial exchange loss where there is a transaction that is not on arm's length terms); and
 
    (d) in section 137(1), paragraph (d) (which makes the giving of a direction a condition of disregarding an exchange loss on a currency contract which is not on arm's length terms), and the word "and" immediately preceding that paragraph.
      (2) Accordingly, the word "and" shall be inserted-
 
 
    (a) at the end of section 135(1)(b) of the Finance Act 1993;
 
    (b) at the end of section 136(1)(b) of that Act; and
 
    (c) at the end of section 137(1)(b) of that Act.
      (3) In section 167(2) of the Finance Act 1994, paragraph (b) (which makes the giving of a direction by the Board a condition of adjusting the amounts brought into account in respect of a relevant transaction which is not on arm's length terms), and the word "and" immediately preceding that paragraph, shall cease to have effect.
 
      (4) The preceding provisions of this section shall have effect (in relation to transactions entered into at any time) as respects accounting periods ending on or after the day appointed under section 199 of the Finance Act 1994 for the purposes of Chapter III of Part IV of that Act (self-assessment management provisions).
 
      (5) Where a direction given on or after 17th March 1998 under-
 
 
    (a) section 135(1)(d), 136(1)(d), (5) or (9), 136A(3) or (7) or 137(1)(d) of the Finance Act 1993, or
 
    (b) section 167(2)(b) of the Finance Act 1994,
  relates to any accounting period ending before the day appointed as mentioned in subsection (4) above, all such adjustments shall be made, whether by assessment, repayment of tax or otherwise, as are necessary to give effect to that direction.
 
 
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