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Finance Bill


Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 2 — Corporation tax: general

36

 

           

For the purposes of this paragraph a “paragraph 6C claim” is a claim

under paragraph 6(2) above made in accordance with this

paragraph.

      (3)  

A paragraph 6C claim may be made by—

(a)   

the disadvantaged person, or

5

(b)   

the advantaged person,

           

but any such claim made by the advantaged person shall be taken to

be made on behalf of the disadvantaged person.

      (4)  

A paragraph 6C claim may be made before or after a computation

falling within paragraph 6(3)(a) above has been made.

10

      (5)  

A paragraph 6C claim must be made either—

(a)   

at any time before the end of the period mentioned in

paragraph 6(5)(a) above, or

(b)   

within the period mentioned in paragraph 6(5)(b) above,

           

but this is subject to section 109(3)(b) of the Taxes Act 1988 (extension

15

of period for making a claim).

      (6)  

A paragraph 6C claim is not a claim within paragraph 57 or 58 of

Schedule 18 to the Finance Act 1998 (company tax returns,

assessments and related matters).

           

Accordingly, paragraph 59 of that Schedule (application of Schedule

20

1A to the Taxes Management Act 1970) has effect in relation to a

paragraph 6C claim.

      (7)  

Where—

(a)   

a paragraph 6C claim is made before a computation falling

within paragraph 6(3)(a) above has been made,

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(b)   

such a computation is subsequently made, and

(c)   

the claim is not consistent with the computation,

           

the affected persons shall be treated as if (instead of the claim

actually made) a claim had been made that was consistent with the

computation.

30

      (8)  

All such adjustments shall be made (whether by discharge or

repayment of tax, the making of assessments or otherwise) as are

required to give effect to sub-paragraph (7) above.

      (9)  

Sub-paragraph (8) above has effect notwithstanding any limit on the

time within which any adjustment may be made.

35

     (10)  

Where—

(a)   

a paragraph 6C claim is made,

(b)   

a return is subsequently made by the advantaged person on

the basis mentioned in paragraph 6(3)(a) above, and

(c)   

a relevant notice (within the meaning of paragraph 6 above)

40

taking account of such a determination as is mentioned in

paragraph 6(4)(b) above is subsequently given to the

advantaged person,

           

sub-paragraph (11) below applies.

     (11)  

Where this sub-paragraph applies, any such amendment of the

45

paragraph 6C claim as may be appropriate in consequence of the

determination contained in the relevant notice may be made by—

(a)   

the disadvantaged person, or

 

 

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 2 — Corporation tax: general

37

 

(b)   

the advantaged person,

           

but any such amendment made by the advantaged person shall be

taken to be made on behalf of the disadvantaged person.

     (12)  

Any such amendment must be made within the period mentioned in

paragraph 6(5)(b) above.

5

           

But that is subject to section 111(3)(b) of the Finance Act 1998

(extension of period for making amendment).

Compensating adjustment for guarantor company etc where paragraph 1B applies

6D    (1)  

This paragraph applies in any case where—

(a)   

a company (“the issuing company”) has liabilities under a

10

security issued by the company,

(b)   

those liabilities are to any extent the subject of a guarantee

provided by a company (“the guarantor company”), and

(c)   

in computing the profits and losses of the issuing company

for tax purposes, the amounts to be deducted in respect of

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interest or other amounts payable under the security fall to be

reduced (whether or not to nil) under paragraph 1(2) above

by virtue of paragraph 1B above.

      (2)  

On the making of a claim in any such case, the guarantor company

shall, to the extent of that reduction, be treated for all purposes of the

20

Taxes Acts as if it (and not the issuing company)—

(a)   

had issued the security,

(b)   

owed the liabilities under it, and

(c)   

had paid any interest or other amounts paid under it by the

issuing company,

25

           

and in computing the profits and losses of the guarantor company

for those purposes amounts shall be brought into account

accordingly.

           

This sub-paragraph is subject to the following provisions of this

paragraph.

30

      (3)  

Where the issuing company’s liabilities under the security are the

subject of two or more guarantees (whether or not provided by the

same person) TD must not exceed TR, where—

TD is the total of the amounts brought into account by the

guarantor companies by virtue of sub-paragraph (2) above,

35

and

TR is the total amount of the reductions that fall within sub-

paragraph (1)(c) above.

      (4)  

In this paragraph “the loan provision” means the actual provision

made or imposed between—

40

(a)   

the issuing company, and

(b)   

another company (“the lending company”),

           

which is provision in relation to the security.

      (5)  

Where—

(a)   

the guarantor company makes a claim under sub-paragraph

45

(2) above, and

(b)   

the lending company makes a claim under paragraph 6

above in respect of the loan provision,

 

 

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 2 — Corporation tax: general

38

 

           

sub-paragraphs (6) and (7) below apply.

      (6)  

In determining, in a case where this sub-paragraph applies, the arm’s

length provision for the purposes of paragraph 6(2)(a) above in

relation to the lending company’s claim, additional amounts shall be

brought into account as credits corresponding to the debits that fall

5

to be brought into account by virtue of sub-paragraph (2) above in

relation to the guarantor company.

      (7)  

If, in a case where this sub-paragraph applies,—

(a)   

the lending company makes its claim under paragraph 6

above before the guarantor company makes its claim under

10

sub-paragraph (2) above, and

(b)   

the computation on which the lending company’s claim is

based does not comply with sub-paragraph (6) above,

           

the guarantor company’s claim shall be disallowed.

      (8)  

A claim under sub-paragraph (2) above may be made by—

15

(a)   

the guarantor company,

(b)   

where there are two or more guarantor companies, those

companies acting together, or

(c)   

the issuing company,

           

but any claim made by the issuing company shall be taken to be

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made on behalf of the guarantor company or companies.

      (9)  

Sub-paragraphs (3) to (6) of paragraph 6 above (claims and time

limits) shall apply in relation to a claim under sub-paragraph (2)

above made by or on behalf of any person or persons as they apply

in relation to a claim under that paragraph made by the

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disadvantaged person, but taking references in those sub-

paragraphs—

(a)   

to the advantaged person, as references to the issuing

company, and

(b)   

to the disadvantaged person, as references to the guarantor

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company or companies.

     (10)  

The following provisions of paragraph 1A above also apply for the

purposes of this paragraph—

(a)   

sub-paragraph (7) (construction of references to a guarantee);

(b)   

sub-paragraph (9) (meaning of security);

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(c)   

sub-paragraph (10) (extended meaning of security).

     (11)  

In this paragraph “the Taxes Acts” has the meaning given in section

118(1) of the Taxes Management Act 1970.”.

(4)   

After paragraph 6D insert—

“Certain interest not to be regarded as chargeable under Case III of Schedule D

40

6E         

Where—

(a)   

interest is paid by any person under the actual provision,

(b)   

paragraph 1(2) above applies in relation to the actual

provision,

(c)   

the amount of interest that would have been payable under

45

the arm’s length provision is less than the amount of interest

 

 

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 2 — Corporation tax: general

39

 

paid under the actual provision (or there would not have

been any interest payable),

(d)   

the person receiving the interest makes a claim under

paragraph 6 or 6C above,

           

the interest paid under the actual provision, to the extent that it

5

exceeds the amount of interest that would have been payable under

the arm’s length provision, shall not be regarded as chargeable

under Case III of Schedule D.”.

36      

Balancing payments and elections to pay tax instead

(1)   

Schedule 28AA to the Taxes Act 1988 is amended as follows.

10

(2)   

After paragraph 7A (which is inserted by section 30) insert—

“Election as to payment of tax instead of balancing payment in certain cases

7B    (1)  

This paragraph applies in any case where—

(a)   

both of the affected persons are companies,

(b)   

the circumstances are as described in paragraph 6(1) above,

15

and

(c)   

the actual provision is provision in relation to a security (the

“relevant security”) issued by the advantaged person.

      (2)  

The disadvantaged person may make an election under this

paragraph in respect of the relevant security if the condition in sub-

20

paragraph (3) below is satisfied.

      (3)  

The condition is that—

(a)   

the actual provision forms part of a capital market

arrangement,

(b)   

the capital market arrangement involves the issue of a capital

25

market investment,

(c)   

the securities that represent the capital market investment are

issued wholly or mainly to independent persons (see sub-

paragraph (9) below), and

(d)   

the total value of the capital market investments made under

30

the capital market arrangement is at least £50 million.

      (4)  

An election under this paragraph in respect of the relevant security

is an election for the disadvantaged person—

(a)   

to make no balancing payment within paragraph 7A above to

the advantaged person in respect of the application of

35

paragraph 1(2) above in relation to the relevant security in a

chargeable period by virtue of paragraph 1A above, but

(b)   

instead, to undertake sole responsibility for discharging the

advantaged person’s liability to tax for that period so far as

resulting from the application of paragraph 1(2) above in

40

relation to the relevant security by virtue of paragraph 1A

above.

      (5)  

Where an election under this paragraph has effect in relation to an

accounting period of the advantaged person, the tax mentioned in

sub-paragraph (4)(b) above—

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Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 2 — Corporation tax: general

40

 

(a)   

shall be recoverable from the disadvantaged person as if it

were an amount of corporation tax due and owing from that

person, and

(b)   

shall not be recoverable from the advantaged person.

      (6)  

Any election under this paragraph in respect of the relevant

5

security—

(a)   

must be made by being included (whether by amendment or

otherwise) in the disadvantaged person’s company tax

return for the chargeable period in which the relevant

security is issued,

10

(b)   

has effect in relation to each of the affected persons for the

chargeable period in which the relevant security is issued and

all subsequent chargeable periods, and

(c)   

is irrevocable.

           

For the purposes of this sub-paragraph a security issued in a

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chargeable period beginning before 1st April 2004 shall be treated as

if it had been issued in the chargeable period beginning on that date.

      (7)  

An election under this paragraph by a person is of no effect if the

Board give that person a notice under this sub-paragraph refusing to

accept the election.

20

      (8)  

A notice under sub-paragraph (7) above may be given only after a

notice of enquiry in respect of the company tax return containing the

election has been given to the disadvantaged person.

      (9)  

In this paragraph—

“capital market arrangement” has the same meaning as in

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section 72B(1) of the Insolvency Act 1986 (see paragraph 1 of

Schedule 2A to that Act);

“capital market investment” has the same meaning as in

section 72B(1) of the Insolvency Act 1986 (see paragraphs 2

and 3 of Schedule 2A to that Act);

30

“company tax return” means the return required to be

delivered pursuant to a notice under paragraph 3 of

Schedule 18 to the Finance Act 1998, as read with paragraph

4 of that Schedule;

“independent person” means a person—

35

(a)   

who is not the disadvantaged person, and

(b)   

who does not have a participatory relationship with

either of the affected persons.

     (10)  

The following provisions of paragraph 1A above also apply for the

purposes of this paragraph—

40

(a)   

sub-paragraph (8) (meaning of participatory relationship);

(b)   

sub-paragraph (9) (meaning of security);

(c)   

sub-paragraph (10) (extended meaning of security).”.

(3)   

After paragraph 7B insert—

“Balancing payments by guarantor to issuer: no charge to, or relief from, tax

45

7C    (1)  

This paragraph applies in any case where—

(a)   

the circumstances are as described in paragraph 6D(1) above,

 

 

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 2 — Corporation tax: general

41

 

(b)   

one or more payments (the “balancing payments”) are made

by the guarantor company to the issuing company, and

(c)   

the sole or main reasons for making those payments are that

paragraph 1(2) above applies by virtue of paragraph 1B

above or that paragraph 6D above applies.

5

      (2)  

To the extent that the balancing payments made by all the guarantor

companies do not in the aggregate exceed the amount TR in

paragraph 6D(3) above (total reductions within paragraph 6D(1)(c)

above), those payments—

(a)   

shall not be taken into account in computing for the purposes

10

of corporation tax the profits or losses of the guarantor

company or companies or the issuing company, and

(b)   

shall not for any purpose of the Corporation Tax Acts be

regarded as distributions or charges on income.”.

Transfer pricing and thin capitalisation: commencement

15

37      

Commencement and transitional provisions

(1)   

In this section “the amending provisions” means—

(a)   

sections 30 to 32 (transfer pricing);

(b)   

sections 34 to 36 (thin capitalisation);

(c)   

Schedule 5 (provision not at arm’s length: related amendments).

20

(2)   

The amendments made by those provisions have effect in relation to

chargeable periods beginning on or after 1st April 2004 (whenever the actual

provision, within the meaning of Schedule 28AA to the Taxes Act 1988, is or

was made or imposed).

(3)   

Where an accounting period of a company begins before, and ends on or after,

25

1st April 2004, it shall be assumed for the purposes of the amending provisions,

the amendments which they make and subsection (2) that that accounting

period (“the straddling period”) consists of two separate accounting periods—

(a)   

the first beginning with the straddling period and ending with 31st

March 2004, and

30

(b)   

the second beginning with 1st April 2004 and ending with the

straddling period,

   

and the company’s profits and losses shall be computed accordingly for tax

purposes.

(4)   

Where a period of account of any person within the charge to income tax

35

begins before, and ends on or after, 6th April 2004, it shall be assumed for the

purposes of the amending provisions, the amendments which they make and

subsection (2) that that period (“the straddling period of account”) consists of

two separate periods of account—

(a)   

the first beginning with the straddling period of account and ending

40

with 31st March 2004, and

(b)   

the second beginning with 1st April 2004 and ending with the

straddling period of account,

   

and the person’s profits and losses shall be computed accordingly for the

purposes of income tax.

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