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Exchange gains and losses | |
10 After section 730B of the Taxes Act 1988 insert— | |
“730BB Exchange gains and losses on sale and repurchase of securities | |
(1) For the purposes of the Corporation Tax Acts, a company has a | |
relationship to which this section applies in any case where— | 5 |
(a) the circumstances are as set out in section 730A(1)(a) and (b); | |
(b) the company is the repurchaser of the securities or (subject to | |
subsection (10) below) the interim holder; | |
(c) the conditions in subsection (2) or (3) below are satisfied; and | |
(d) subsection (9) below does not prevent this section from | 10 |
applying, | |
and references to a relationship to which this section applies, and to | |
a company’s being a party to such a relationship, shall be construed | |
accordingly. | |
(2) The conditions in this subsection are that— | 15 |
(a) the sale price and the repurchase price are expressed in a | |
currency other than sterling; | |
(b) there is a difference between— | |
(i) the sterling equivalent of the sale price as at the date | |
of the transfer of the securities to the interim holder | 20 |
(“the first sum”); and | |
(ii) the sterling equivalent of the sale price as at the date | |
they are bought back by the repurchaser (“the second | |
sum”); and | |
(c) the case is not one where section 93 of the Finance Act 1993 | 25 |
(accounts of a company in a currency other than sterling) | |
applies in relation to the company. | |
(3) The conditions in this subsection are that— | |
(a) the case is one where section 93 of the Finance Act 1993 | |
applies in relation to the company; | 30 |
(b) the sale price and the repurchase price are expressed in a | |
currency other than the relevant foreign currency (within the | |
meaning of that section) in relation to the company; and | |
(c) there is a difference between— | |
(i) the relevant foreign currency equivalent of the sale | 35 |
price as at the date of the transfer of the securities to | |
the interim holder (“the first sum”); and | |
(ii) the relevant foreign currency equivalent of the sale | |
price as at the date they are bought back by the | |
repurchaser (“the second sum”). | 40 |
(4) Where a company has a relationship to which this section applies | |
and— | |
(a) the company is the repurchaser and the first sum exceeds the | |
second sum; or | |
(b) the company is the interim holder and the second sum | 45 |
exceeds the first sum, | |
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the amount of the excess shall be treated for the purposes of the | |
Corporation Tax Acts as an exchange gain (within the meaning of | |
Chapter 2 of Part 4 of the Finance Act 1996 (loan relationships)) | |
arising to the company from the relationship. | |
(5) Where a company has a relationship to which this section applies | 5 |
and— | |
(a) the company is the repurchaser and the second sum exceeds | |
the first sum; or | |
(b) the company is the interim holder and the first sum exceeds | |
the second sum, | 10 |
the amount of the excess shall be treated for the purposes of the | |
Corporation Tax Acts as an exchange loss (within the meaning of | |
Chapter 2 of Part 4 of the Finance Act 1996 (loan relationships)) | |
arising to the company from the relationship. | |
(6) Where an exchange gain or loss is treated by virtue of subsection (4) | 15 |
or (5) above as arising to a company from a relationship to which this | |
section applies— | |
(a) Chapter 2 of Part 4 of the Finance Act 1996 shall have effect in | |
relation to the exchange gain or loss as it would have effect if | |
it were an exchange gain or loss (as the case may be) arising | 20 |
to the company from a loan relationship to which it is a party; | |
but | |
(b) the only debits and credits to be brought into account for the | |
purposes of that Chapter by virtue of this section in respect of | |
the relationship to which this section applies are those | 25 |
relating to the exchange gains and losses, | |
and, subject to paragraph (b) above, references in the Corporation | |
Tax Acts to a loan relationship accordingly include a reference to a | |
relationship to which this section applies. | |
(7) Any question whether debits or credits brought into account in | 30 |
accordance with subsection (6) above in relation to any company— | |
(a) are to be brought into account under section 82(2) of the | |
Finance Act 1996 (trading loan relationships); or | |
(b) are to be treated as non-trading debits or credits, | |
shall be determined (subject to Schedule 11 to that Act (insurance | 35 |
companies)) according to the extent (if any) to which the company is | |
a party to the repurchase in the course of activities forming an | |
integral part of a trade carried on by that company. | |
(8) To the extent that debits or credits fall to be brought into account by | |
a company under section 82(2) of that Act in the case of a relationship | 40 |
to which this section applies, the company shall be regarded for the | |
purposes of Chapter 2 of Part 4 of the Finance Act 1996 as being a | |
party to the relationship for the purposes of a trade carried on by the | |
company. | |
(9) Except where regulations under section 737E otherwise provide, this | 45 |
section does not apply if— | |
(a) the agreement or agreements under which provision is made | |
for the sale and repurchase are not such as would be entered | |
into by persons dealing with each other at arm’s length; or | |
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(b) all of the benefits and risks arising from fluctuations, before | |
the repurchase takes place, in the market value of the | |
securities sold accrue to, or fall on, the interim holder. | |
(10) Where— | |
(a) the repurchase price is more than the sale price, so that by | 5 |
virtue of section 730A(2)(a) a payment of interest is treated as | |
made by the repurchaser on a deemed loan from the interim | |
holder; but | |
(b) the payment of interest is treated as made to a person other | |
than the interim holder, | 10 |
references to the “interim holder” in subsections (1), (4) and (5) above | |
shall be read as references to the person to whom the payment of | |
interest is treated as made. | |
(11) Any reference in this section to the “relevant foreign currency | |
equivalent” of an amount is, in the case of any company, a reference | 15 |
to the amount’s equivalent expressed in the relevant foreign | |
currency (within the meaning of section 93 of the Finance Act 1993) | |
in relation to the company. | |
(12) Expressions used in this section and in section 730A have the same | |
meaning in this section as in that section.”. | 20 |
11 (1) Section 737E of the Taxes Act 1988 (power to modify sections 727A, 730A | |
and 737A to 737C) is amended as follows. | |
(2) In subsections (1) and (2), after “730A” insert “, 730BB”. | |
(3) In subsection (3), after “730A” insert “or 730BB”. | |
(4) In consequence of the amendments made by this paragraph, the sidenote | 25 |
becomes “Power to modify sections 727A, 730A, 730BB and 737A to 737C”. | |
12 In section 100 of the Finance Act 1996 (c. 8) (exchange gains and losses on | |
debts etc not arising from the lending of money), after subsection (2) insert— | |
“(2A) Where— | |
(a) a company has a relationship to which section 730BB of the | 30 |
Taxes Act 1988 applies (exchange gains and losses on sale | |
and repurchase of securities), and | |
(b) the circumstances mentioned in subsection (1)(a) of that | |
section are such that a money debt arises from the obligation | |
mentioned in section 730A(1)(b)(i) of that Act, | 35 |
the company shall not be regarded for the purposes of the | |
Corporation Tax Acts as having, by reason of that money debt, a | |
relationship to which this section applies, so far as relating to | |
exchange gains and losses.”. | |
Exceptions | 40 |
13 In section 727A(1) of the Taxes Act 1988 (accrued income scheme not to | |
apply to transfers of securities under repo agreements), insert at the end | |
“except in a case where section 730A of the Taxes Act 1988 is prevented from | |
applying by subsection (8) of that section.”. | |
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14 In section 730A(8)(b) of the Taxes Act 1988 (treatment of price differential on | |
sale and repurchase: exclusion of cases where all benefits or risks are for | |
interim holder), for “benefits or risks” substitute “benefits and risks”. | |
15 In section 737C(11A) of the Taxes Act 1988 (purposes for which deemed | |
increase of repurchase price has effect), insert at the end “or where that | 5 |
section is prevented from applying by subsection (8) of that section”. | |
16 (1) Paragraph 15 of Schedule 9 to the Finance Act 1996 (repo transactions not | |
related transactions for purposes of loan relationship provisions) is | |
amended as follows. | |
(2) In sub-paragraph (3), after “means” insert “(subject to sub-paragraph (3A))”. | 10 |
(3) After that sub-paragraph insert— | |
“(3A) Arrangements are not repo or stock-lending arrangements if they | |
are excluded from section 730A of the Taxes Act 1988 by | |
subsection (8) of that section.”. | |
Connected persons | 15 |
17 In paragraph 15(3)(b) of Schedule 9 to the Finance Act 1996 (repo | |
transactions not related transactions for purposes of loan relationship | |
provisions), omit “, or a person connected with him,”. | |
Correction of section 730A(6B) of the Taxes Act 1988 | |
18 In section 730A(6B) of the Taxes Act 1988 (trading loan relationship debits | 20 |
and credits falling to be brought into account under section 82(2))— | |
(a) for “section 82(2) above” substitute “section 82(2) of the Finance Act | |
1996”, and | |
(b) for “the Finance Act 1996” substitute “that Act”. | |
Commencement | 25 |
19 (1) Paragraph 1 has effect in relation to repurchase prices becoming due on or | |
after 9th April 2003. | |
(2) Paragraphs 2 to 17 have effect in relation to agreements to sell securities | |
made on or after 9th April 2003. | |
(3) Paragraph 18 has effect in relation to accounting periods beginning on or | 30 |
after 1st October 2002. | |
Schedule 39 | |
Section 181 | |
Relevant discounted securities: withdrawal of relief for costs and losses, etc | |
Withdrawal of relief for incidental costs | |
1 (1) In Schedule 13 to the Finance Act 1996 (c. 8) (discounted securities: income | 35 |
tax provisions), paragraph 1 (charge to tax on realised profit comprised in | |
discount) is amended as follows. | |
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(2) In sub-paragraph (2) (meaning of “realising the profit” from the discount on | |
a relevant discounted security) at the end of paragraph (b) insert “(no | |
account being taken of any costs incurred in connection with the transfer or | |
redemption of the security or its acquisition)”. | |
(3) In sub-paragraph (3)(a) (calculation of profit) omit “reduced by the amount | 5 |
of any relevant costs”. | |
(4) Omit sub-paragraph (4) (meaning of “relevant costs”). | |
Withdrawal of relief for losses | |
2 Omit paragraph 2 of that Schedule (income tax relief for losses on | |
discounted securities). | 10 |
Withdrawal of loss relief: exception for strips of government securities | |
3 After paragraph 14 of that Schedule (gilt strips) insert— | |
“Strips of government securities: losses | |
14A (1) A person who sustains a loss in any year of assessment from the | |
discount on a strip shall be entitled to relief from income tax on an | 15 |
amount of his income for that year equal to the amount of the loss. | |
(2) The relief is due only if the person makes a claim before the end of | |
twelve months from the 31st January following that year. | |
(3) For the purposes of this paragraph a person sustains a loss from | |
the discount on a strip where— | 20 |
(a) he transfers the strip or becomes entitled, as the person | |
holding it, to any payment on its redemption, and | |
(b) the amount paid by him for the strip exceeds the amount | |
payable on the transfer or redemption (no account being | |
taken of any costs incurred in connection with the transfer | 25 |
or redemption of the strip or its acquisition). | |
The loss shall be taken to be equal to the amount of the excess, and | |
to be sustained in the year of assessment in which the transfer or | |
redemption takes place. | |
(4) In sub-paragraph (3) above the reference to a transfer in paragraph | 30 |
(a) includes a reference to a deemed transfer under paragraph | |
14(4) above (and paragraph (b) shall be read accordingly). | |
(5) This paragraph does not apply in the case of— | |
(a) any transfer of a strip for the time being held under a | |
settlement the trustees of which are not resident in the | 35 |
United Kingdom, or | |
(b) any redemption of a strip which is so held immediately | |
before its redemption.”. | |
Extension of provisions about strips to strips of foreign government securities | |
4 In the definition of “strip” in paragraph 15(1) of that Schedule, for “is a strip | 40 |
of a gilt-edged security” substitute “is a strip of a security, or would be if that | |
section had effect with the substitution in subsection (1B) of “issued by or on | |
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behalf of the government of any territory” for “issued under the National | |
Loans Act 1968””. | |
Consequential amendments | |
5 (1) In paragraph 6 of that Schedule (trustees and personal representatives)— | |
(a) in sub-paragraph (3) for “paragraphs 1(1) and 2(1) above do not | 5 |
apply” substitute “paragraph 1(1) above does not apply”; | |
(b) omit sub-paragraphs (4) to (6). | |
(2) Omit the following provisions of that Schedule— | |
(a) paragraph 7 (treatment of losses where income exempt); | |
(b) paragraph 9A (securities issued to connected person etc at price in | 10 |
excess of market value: transfer to connected person); | |
(c) paragraph 11 (accrued income scheme). | |
(3) In paragraph 14 of that Schedule (gilt strips)— | |
(a) for the heading substitute “Strips of government securities”; | |
(b) in sub-paragraphs (2) and (3), omit the words “gilt-edged”; | 15 |
(c) in sub-paragraph (4), omit the words after paragraph (c). | |
(4) In section 710(3) of the Taxes Act 1988 (categories of security not included in | |
accrued income scheme) after paragraph (e) insert— | |
“(f) any relevant discounted security within the meaning of | |
Schedule 13 to the Finance Act 1996 (see paragraphs 3 and | 20 |
14(1) of that Schedule).”. | |
Commencement and transitional provisions | |
6 (1) Subject to sub-paragraph (2)— | |
(a) the amendments made by paragraphs 1 and 5(3)(c) apply in relation | |
to costs incurred on or after 27th March 2003; | 25 |
(b) the amendments made by paragraphs 2, 3 and 5(1), (2) and (4) apply | |
in relation to any loss sustained from the discount on a relevant | |
discounted security transferred or redeemed on or after that date; | |
(c) the amendments made by paragraphs 4 and 5(3)(a) and (b) apply in | |
relation to any security acquired on or after that date. | 30 |
(2) The amendments mentioned in sub-paragraph (1)(a) and (b) do not apply in | |
relation to costs incurred, or losses sustained, on the transfer or redemption | |
of a relevant discounted security if— | |
(a) the person transferring or redeeming the security held it | |
continuously since a time before 27th March 2003, and | 35 |
(b) the security was listed on a recognised stock exchange at any time | |
before that date. | |
(3) No losses may be carried forward under paragraph 6(6) of Schedule 13 to the | |
Finance Act 1996 (c. 8) to any year of assessment after 2002-03. | |
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