Schedule 9: Taxation provisions relating to nuclear transfer schemes

473.     Schedule 9, given effect by clause 50, establishes the tax provisions that will apply to transfers by way of a nuclear transfer scheme. These provisions supplement existing tax legislation. The Bill provides flexibility for transfer schemes to take a variety of possible forms and Schedule 9 has been drawn up to cater for this flexibility. The main intention of Schedule 9 is to ensure that tax charges and reliefs on either party are not triggered as a result of a nuclear transfer scheme and that such schemes should, as far as possible, be tax neutral for both parties.

474.     Schedule 9 mainly deals with transfers made under nuclear transfer schemes to the NDA, an NDA company and from BNFL or from the UK Atomic Energy Authority to publicly owned companies that are not subsidiaries of the NDA. However, there are other tax provisions dealing with the transfer of the Nuclear Liabilities Investment Portfolio, stamp duty and miscellaneous supplemental provisions.

Part 1 - Transfers to the NDA or a subsidiary of the NDA

475.     Part 1 sets out the tax effects of transfers to the NDA or subsidiaries of the NDA under nuclear transfer schemes, under clause 42. Such nuclear transfer schemes may be effected to bring companies involved in or assets used for decommissioning and other activities under the NDA's control, or to transfer a site licensee company to the NDA at the end of a management contract.

476.     Paragraph 1 extinguishes certain trading losses brought forward when companies become NDA companies in consequence of a clause 42 scheme. This paragraph only extinguishes losses if they have arisen from trading activities that would have been exempt if carried on by the NDA. This ensures that no brought forward trading losses relating to exempt activities may subsequently be used by private companies. The purpose of this clause is similar to that of clause 30(1) which prevents current tax trading losses from arising from exempt activities.

477.     Paragraph 1(2) extinguishes such losses at the time a company becomes an NDA company in accordance with such a nuclear transfer scheme. Paragraph 1(3) allows any reasonable apportionment method to be used to allocate income and expenditure and hence to allocate tax trading losses to exempt and non-exempt activities.

478.     Paragraph 2 has the same intention as paragraph 1 but applies where a trade is transferred to the NDA or an NDA company, as a consequence of a clause 42 scheme, to extinguish brought forward trading losses associated with the activities transferred, if such activities would have been exempt if they had been carried on by the NDA.

479.     Paragraph 2(2) extinguishes the losses at the time when a trade or part of a trade is transferred to the NDA or an NDA company in accordance with such a nuclear transfer scheme.

480.     Paragraph 2(3) allows the NDA or an NDA company which begins to carry on a trade under a nuclear transfer scheme access to brought forward trading losses arising from non-exempt trading activities which are transferred.

481.     Paragraph 3 explains that transfers of chargeable assets to the NDA or an NDA subsidiary under a nuclear transfer scheme under clause 42 are to be tax neutral for the transferor by treating the disposal such that neither a gain nor a loss arises for tax purposes.

482.     Paragraph 4 excludes acquisition and enhancement costs from the calculation of the chargeable gain or capital loss arising on the disposal of certain chargeable assets by the NDA or an NDA subsidiary, such that the asset has a nil base cost for disposal purposes. This computational provision is to reduce the disproportionate effort and cost that the NDA would otherwise incur. Without this provision it would be necessary to maintain registers and associated base costs of publicly owned assets through potentially numerous nuclear transfer schemes and over lengthy periods of time.

483.     Paragraph 4(1) limits the assets to which this restriction applies to those acquired under nuclear transfer schemes in accordance with clause 42 or 43, which were not part of the Nuclear Liabilities Investment Portfolio. Paragraph 4(2) specifically denies relief for these acquisition and enhancement costs.

484.     Paragraph 4(3) deals with subsequent transfers where neither a gain nor loss accrues to the NDA or its subsidiary. Paragraph 4(4) provides that paragraph 29 takes precedence so that in relation to the transfer of shares in relevant site licensee companies, the shares are treated as having been disposed of at a value that gives neither gain nor loss to the transferor.

485.     The aim of paragraph 5 is to prevent tax liabilities arising in companies as a result of historic fixed asset transfers, where such liabilities arise only as a result of the implementation of nuclear transfer schemes under clause 42.

486.     Paragraph 5 prevents a degrouping charge as defined by the 1992 Act from arising in a company transferred to the NDA or an NDA company under such a nuclear transfer scheme. Paragraph 5(2) prevents the 1992 Act from deeming the transferred company to have made a chargeable disposal of certain assets on leaving the old group. Paragraph 5(3) ensures that the deemed disposal and reacquisition is reinstated when the transferred company leaves the new group, as defined in the subparagraph.

487.     Paragraph 6 provides that a transfer of debts to the NDA or a subsidiary of the NDA under a clause 42 nuclear transfer scheme will not give rise to a tax charge in the transferor, to the extent that the debts transferred are treated as chargeable assets. This is consistent with the general aim of ensuring tax neutrality for transfer schemes.

488.     Paragraph 6(2) deems the NDA to have always been the creditor in respect of the debt and therefore the effect is that no disposal takes place for the purposes of the 1992 Act.

Paragraph 7

489.     Paragraph 7 sets out the capital allowances position of both transferor and transferee where, in consequence of a clause 42 scheme, assets are transferred to the NDA or subsidiary of the NDA with a whole trade. The aim of the paragraph is to ensure continuity of treatment such that no allowances or charges arise in the transferor and the transferee is treated as having always owned the relevant assets.

490.     Paragraph 7(1) restricts the application of paragraph 7 to transfers of trades from companies which are not subsidiaries of the NDA to the NDA or its subsidiaries, such transfers taking place under such a nuclear transfer scheme.

491.     Paragraph 7(2) ensures that allowances are available to the NDA or its subsidiary as if the transferor company had continued to carry on that trade. Paragraph 7(3) confirms that no balancing adjustments or recognition of disposal proceeds arise to a company that transfers its whole trade, or part of its trade, to the NDA. Paragraph 7(4) calculates the amount of allowances available to the NDA or its subsidiary on the basis that the NDA or its subsidiary had been carrying on the trade for the same time and on the same basis as the transferor. The transferor is deemed to have transferred its assets associated with the trade at the value which ensures no balancing allowance or charge arises in that company.

492.     The intention behind paragraph 8 is similar to that behind paragraph 7 in that it provides clarity as to the capital allowances position of both transferor and transferee where assets are transferred with a trade by a company which is not a subsidiary of the NDA to the NDA or one of its subsidiaries. The difference between paragraphs 7 and 8 is that paragraph 8 applies where either the transferee already carries on a trade (paragraph 8(1)) or only part of a trade is transferred (paragraph 8(2)) or both.

493.     Each of paragraphs 8(1) and 8(2) provide that the provisions of paragraph 7 should apply to the trade transferred and that the trade transferred should be treated as a separate trade from that previously engaged in by the transferee and transferor respectively.

494.     Paragraph 8(3) allows a reasonable apportionment of income, expenditure, assets and liabilities to the separate trades as necessary for the purposes of calculating the capital allowances position of the assets associated with the trade transferred.

495.     Paragraph 9 details the capital allowances position where assets are transferred other than as part of a trade.

496.     Where plant and machinery is transferred in accordance with a nuclear transfer scheme but the transfer does not form part of a trade, such that paragraph 7 does not apply, the assets are transferred to the NDA at their book value for accounts purposes.

497.     Paragraph 10 provides that the legislation detailing the capital allowances position in respect of transfers between connected persons is not to apply to transfers made in accordance with nuclear transfer schemes within clause 42.

498.     Paragraph 11 explains how transfers of loan relationships should be treated in the event that the NDA or a subsidiary of the NDA replaces a person as party to a loan relationship in accordance with a nuclear transfer scheme under clause 42. The aim is that such transfers should be treated as tax neutral such that no tax benefit is obtained by either the transferor or the transferee as a result of the transfer.

499.     Accordingly, paragraph 11(2) applies the loan relationship rules of Finance Act 1996 to the loan relationship, and treats the transferee as if it had been a party to the loan relationship since the time the transferor had been party to it.

Paragraph 12

500.     Paragraph 12 explains how transfers of derivative contracts should be treated in the event that the NDA or a subsidiary of the NDA replaces a person as party to a derivative contract in accordance with a nuclear transfer scheme under clause 42. As with paragraph 11, the aim is that such transfers should be treated as tax neutral such that no undue tax benefit is obtained by either the transferor or the transferee as a result of the transfer.

501.     Accordingly, paragraph 12(2) applies the derivative contract rules of Schedule 26 to the Finance Act 2002 to the derivative contract, and treats the transferee as if it had been a party to the derivative contract since the time the transferor had been party to it.

502.     Paragraph 13 explains how the transfers of intangible assets are to be treated where transfers are made to the NDA or a subsidiary of the NDA under a nuclear transfer scheme. As with paragraphs 11 and 12 the aim is that such transfers should be treated as tax neutral with no undue tax benefit being obtained by the transferor or transferee.

503.     Paragraph 13(1) explains that the transfer of a 'chargeable intangible asset' should be treated as a tax neutral transfer for the purposes of Schedule 29 to the Finance Act 2002. Paragraph 13(2) explains that where an intangible asset is transferred that was not a chargeable intangible asset in the hands of the transferor but falls to be treated as such by the NDA or its subsidiary after the transfer, then the acquisition value for tax purposes for the NDA is the same amount as the disposal consideration of the transferor under paragraph 3(2) of the Schedule, that is an amount causing neither a gain nor a loss to arise on the transferor.

504.     Paragraph 14 defers a degrouping charge that would otherwise arise as a result of the implementation of a nuclear transfer scheme, where the charge would arise in respect of intangible fixed assets that have previously been transferred between group companies. The aim of this paragraph is to prevent tax liabilities arising in companies due to historic transactions where such liabilities arise only as a result of the implementation of transfer schemes.

505.     Paragraph 14(1) describes which degrouping charges are covered by the paragraph. Paragraph 14(2) defers the application of the degrouping legislation of paragraph 58 of Schedule 29 to the Finance Act 2002 and paragraph 14(3) applies this degrouping legislation on the first subsequent occasion that the degrouped company ceased to be a member of its new group of companies, 'new group' being defined in the subparagraph.

     506.     Paragraph 15 ensures that where a trade or part of a trade is transferred from a BNFL company to the NDA there is tax neutrality and the transferee effectively stands in the shoes of the transferor for tax purposes. This will ensure that there will be no tax consequences where the transferor writes off sums in its books as part of the detailed transfer arrangements. The rule will apply to trading items, such as trade debtors or sums received in advance for the supply of goods or services by the transferor, or trade creditors and sums paid in advance for the provision of services to the company.

Part 2 - Other Transfers relating to BNFL or the UKAEA etc

507.     Part 2 of Schedule 9 applies to transfers of shares in a wholly owned subsidiary of BNFL or UKAEA or of property, rights or liabilities of BNFL, the UKAEA or their subsidiaries. However, unlike Part 1, Part 2 only applies to transfers made in accordance with a nuclear transfer scheme, which must always fall within clause 42, where the transferee is a publicly owned company which is not a subsidiary of the NDA, or the UKAEA. The provisions in Part 2 are in many cases in very similar terms to those in Part 1.

508.     Paragraph 16 identifies the transfers which may fall within Part 2, as described above.

509.     Paragraph 17 deals with the application of section 343 of the Income and Corporation Taxes Act 1988 to transfers where the conditions in section 343(1) surrounding ownership of the transferor and transferee, are satisfied in respect of such a transfer.

510.     The paragraph states that section 343(4) shall not apply in respect of such transfers. This means that the general restriction of the trading losses which may be transferred by reference to the excess of relevant liabilities over relevant assets is specifically not applied to such transfers.

511.     The application of section 343(4) of the Taxes Act has been removed as it is not yet determined what transfers will be made under nuclear transfer schemes. It is therefore possible that nuclear provisions relating to a different trade could remain in the transferor company when a nuclear transfer scheme is enacted. This may ordinarily cause a loss restriction under section 343(4) of the Taxes Act. It is the intention of Government that the possible restriction of tax losses should not be considered in determining the methods available to effect the transfer and that tax losses correctly attaching to a trade should not be lost solely because of the arrangements of a transfer scheme.

512.     Paragraph 18 explains that transfers of chargeable assets to the NDA or an NDA company under a nuclear transfer scheme are to be tax neutral for the transferor by treating the disposal as one where neither a gain nor a loss arises for tax purposes. This tax neutral disposal value is the base cost for acquisition purposes for the transferee.

513.     The aim of this paragraph is to prevent tax liabilities arising in companies as a result of historic fixed asset transfers, where such liabilities arise only as a result of the implementation of nuclear transfer schemes.

514.     Paragraph 19 prevents a degrouping charge as defined by the 1992 Act from arising in a company under a nuclear transfer scheme to which Part 2 of this Schedule applies. Paragraph 19(2) prevents the 1992 Act from deeming the transferred company to have made a chargeable disposal of certain assets on leaving the old group. Paragraph 19(3) ensures that the deemed disposal and reacquisition is reinstated when the transferred company leaves the new group, 'new group' being defined in the subparagraph.

515.     Paragraph 20 provides that a transfer of debts under a nuclear transfer scheme to which Part 2 of this Schedule applies will not give rise to a tax charge in the transferor, to the extent that the debts transferred are treated as chargeable assets. This is consistent with the general aim of ensuring tax neutrality for transfer schemes.

516.     Paragraph 20(2) deems the transferee to have always been the creditor in respect of the debt and therefore the effect is that no disposal takes place for the purposes of the 1992 Act.

517.     Paragraph 21 details the capital allowances position where assets are transferred other than as part of a trade.

518.     Where plant and machinery is transferred in accordance with a nuclear transfer scheme but the transfer does not form part of a trade, assets will be transferred at their book value. This treatment mirrors the treatment of assets transferred to the NDA, as set out in paragraph 9.

519.     Paragraph 22 provides that the legislation detailing the capital allowances position in respect of transfers between connected persons is not to apply to transfers made in accordance with nuclear transfer schemes within Part 2.

520.     Paragraph 23 explains how transfers of loan relationships should be treated in the event that a transferee replaces a person as party to a loan relationship in accordance with a transfer scheme, where Part 2 of this Schedule applies. The aim of the paragraph is that such transfers should be treated as tax neutral so that no tax benefit is obtained by either the transferor or the transferee as a result of the transfer.

521.     Accordingly, paragraph 23(2) applies the loan relationship rules of FA 1996 to the loan relationship, and treats the transferee as if it had been a party to the loan relationship since the time the transferor had been party to it.

522.     Paragraph 24 explains how transfers of derivative contracts should be treated in the event that a transferee replaces a person as party to a derivative contract in accordance with a nuclear transfer scheme to which Part 2 of this Schedule applies. As with paragraph 23, the aim is that such transfers should be treated as tax neutral such that no undue tax benefit is obtained by either the transferor or the transferee as a result of the transfer.

523.     Accordingly, paragraph 24(2) applies the derivative contract rules of Schedule 26 to the Finance Act 2002 to the derivative contract, and treats the transferee as if it had been a party to the derivative contract since the time the transferor had been party to it.

524.     Paragraph 24 explains how the transfers of intangible assets are to be treated where a transfer is made under a nuclear transfer scheme to which Part 2 of this Schedule applies. As with paragraphs 22 and 23 the aim is that such transfers should be treated as tax neutral with no undue tax benefit being obtained by the transferor or transferee.

525.     Paragraph 25(1) explains that the transfer of a 'chargeable intangible asset' should be treated as a tax neutral transfer for the purposes of Schedule 29 to the Finance Act 2002. Paragraph 25(2) explains that where an intangible asset is transferred that was not a chargeable intangible asset in the hands of the transferor but falls to be treated as such by the NDA or its subsidiary after the transfer, then the acquisition value for tax purposes for the NDA is the same amount as the disposal consideration of the transferor under paragraph 3(2) of the Schedule, that is an amount causing neither a gain nor a loss to arise on the transferor.

526.     Paragraph 26 defers a degrouping charge that would otherwise arise as a result of the implementation of a nuclear transfer scheme, where the charge would arise in respect of intangible fixed assets that have previously been transferred between group companies. The aim of this paragraph is to prevent tax liabilities arising in companies due to historic transactions where such liabilities arise only as a result of the implementation of transfer schemes.

527.     Paragraph 26(1) identifies the circumstances in which the paragraph applies. Paragraph 26(2) defers the application of the degrouping legislation of paragraph 58 of Schedule 29 to the Finance Act 2002 and paragraph 25(3) applies this degrouping legislation on the first subsequent occasion that the degrouped company ceased to be a member of its new group of companies, 'new group' being defined in the subparagraph.

     528.     Paragraph 27 ensures that where a trade or part of a trade is transferred under a clause 42 scheme from a BNFL company to another publicly owned company that is not an NDA subsidiary, there is tax neutrality and the transferee effectively stands in the shoes of the transferor for tax purposes. This will potentially apply to trading items such as trade debtors or sums received in advance for the supply of goods or services by the transferor, or trade creditors and sums paid in advance for the provision of services to the company. The provision is similar to that in paragraph 15 which applies in respect of transfers to the NDA or a subsidiary within Part 1 of this Schedule.

Part 3 - Transfers relating to relevant site licensees

529.     Part 3 ensures that certain tax provisions concerned with chargeable gains and intangible assets apply in a tax neutral way, on that occasion and subsequently, where a company becomes a relevant site licensee company, as defined in clause 30 of the Bill. The provisions in question relate to 'degrouping' adjustments (where a company leaves a group) and to the computation of the gain or loss on the transferor or transferee where shares in the 'relevant site licensee' are transferred.

530.     Paragraph 28(1) sets out the scope of the paragraph. It is concerned with the case where a subsidiary of the NDA becomes a "relevant site licensee" company.

531.     Paragraph 28(2) and (3) provide that the relevant site licensee is to be treated as continuing to be in its original (NDA) group for chargeable gains purposes (1992 Act), intangible assets gains and losses purposes (Schedule 29 to the Finance Act 2002) and the exemptions from degrouping charges provided in this Schedule. This means in particular that no degrouping computation would be needed either when the NDA subsidiary leaves the NDA group on becoming a relevant site licensee company or when that company resumes its membership of the NDA group on ceasing to be such a company.

532.     Paragraph 28(4) provides that the definitions of groups for chargeable gains purposes (1992 Act), and intangible assets gains and losses purposes (Schedule 29 to the Finance Act 2002) are to apply for the respective purposes of the paragraph.

     533.     Paragraph 29 allows for the transfers of relevant site licensee companies to or from the NDA, or between one contracting group and another, to be at such a price that neither a gain nor a loss arises for the purposes of capital gains. The overall effect of paragraph 29 is that the transfer of site license companies between different owners (for instance at the beginning and end of a managing contract) is tax neutral.

     534.     Paragraph 30 attracts the definition of relevant site licensee in clause 30.

Part 4 - Transfer of Nuclear Liabilities Investment Portfolio

535.     The aim of paragraphs 31 to 33 inclusive is to ensure that should the Nuclear Liabilities Investment Portfolio be transferred to the Secretary of State then such a transfer would be tax neutral for BNFL (the current owner of the Nuclear Liabilities Investment Portfolio).

536.     Paragraph 31 applies Part 4 to transfers to the Secretary of State made in accordance with a transfer scheme which is authorised under clause 45 of this Bill (Transfer of Nuclear Liabilities Investment Portfolio).

537.     Paragraph 32 explains that for chargeable gains purposes a disposal falling within Part 4 should be treated as one for which neither a gain nor capital loss accrues to BNFL.

538.     Paragraph 33 ensures that where a transfer is made in respect of this Part, BNFL is not allowed to bring debits or credits into account under either the loan relationship provisions of Chapter 2 of Part 4 of the Finance Act 1996 or the derivative contract provisions of Schedule 26 to the Finance Act 2002. The aim of this paragraph is to ensure tax neutrality in respect of this Part.

Part 5 - Stamp duty etc

539.     Paragraph 34 deals with stamp duty and stamp duty reserve tax. The aim of the paragraph is to ensure that no stamp duty liability arises on transfers under nuclear transfer schemes where such transfers are made to publicly owned bodies.

540.     Paragraph 34(1) explains that stamp duty is not chargeable on nuclear transfer schemes or on instruments certified by the Secretary of State to the Commissioners of the Inland Revenue that are associated with such schemes. The exemption to stamp duty only applies to the extent the scheme or transfer is not in relation to a private transfer.

541.     Paragraph 34(2) explains the conditions that must be met for a scheme or instrument to be treated as being stamped where stamp duty is not chargeable as a result of the stamped application of paragraph 34(1).

542.     Paragraph 34(3) provides that, in a similar vein to paragraph 34(1), no stamp duty reserve tax should arise in respect of transfers made under schemes except to the extent the scheme is not in relation to a private transfer.

543.     Paragraph 34(4) provides a definition of 'instrument' and 'private transfer'.