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Finance Bill
Schedule 13 — Avoidance involving financial arrangements

251

 

than the market value of the corporate strip on the day

before redemption,

           

and the obtaining of a tax advantage by any person is the main

benefit, or one of the main benefits, that might have been expected

to accrue from, or from any provision of, the scheme or

5

arrangement.

      (2)  

In a case falling within sub-paragraph (1)(a) above, the person

shall be treated for the purposes of paragraph 1(2)(b) above on a

transfer of the corporate strip by him as if he had paid in respect

of his acquisition of the corporate strip an amount equal to the

10

market value of the corporate strip at the time of that acquisition.

      (3)  

In a case falling within sub-paragraph (1)(b) above, the person

shall be treated for the purposes of paragraph 1(2)(b) above as if

the amount payable to him on the transfer were an amount equal

to the market value of the corporate strip at the time of the

15

transfer.

      (4)  

In a case falling within sub-paragraph (1)(c) above, the person

shall be treated for the purposes of paragraph 1(2)(b) above as if

the amount payable to him on redemption were an amount equal

to the market value of the corporate strip on the day before

20

redemption.

      (5)  

The market value of a corporate strip at any time shall be

determined for the purposes of this paragraph without regard to

any increase or diminution in the value of the corporate strip as a

result of the scheme or arrangement mentioned in sub-paragraph

25

(1) above.

      (6)  

For the purposes of this paragraph, no account shall be taken of

any costs incurred in connection with any transfer or redemption

of a corporate strip or its acquisition.

      (7)  

In this paragraph “tax advantage” has the meaning given by

30

section 709(1) of the Taxes Act 1988.

Corporate strips: manipulation of price: associated payment giving rise to CGT loss

13D   (1)  

Where—

(a)   

as a result of any scheme or arrangement which has an

unallowable purpose, the circumstances are, or might have

35

been, as mentioned in paragraph (a), (b) or (c) of paragraph

13C(1) above,

(b)   

under the scheme or arrangement, a payment falls to be

made otherwise than in respect of the acquisition or

disposal of a corporate strip, and

40

(c)   

as a result of that payment or the circumstances in which it

is made, a loss accrues to any person for the purposes of

capital gains tax,

           

the loss shall not be an allowable loss for the purposes of capital

gains tax.

45

      (2)  

For the purposes of this paragraph a scheme or arrangement has

an unallowable purpose if the main benefit, or one of the main

benefits, that might have been expected to result from, or from any

 

 

Finance Bill
Schedule 13 — Avoidance involving financial arrangements

252

 

provision of, the scheme or arrangement (apart from paragraph

13C above and this paragraph) is—

(a)   

the obtaining of a tax advantage by any person, or

(b)   

the accrual to any person of an allowable loss for the

purposes of capital gains tax.

5

      (3)  

In this paragraph “tax advantage” has the meaning given by

section 709(1) of the Taxes Act 1988.”.

      (6)  

In paragraph 15(1) (general interpretation) insert each of the following

definitions at the appropriate place—

“ “corporate strip” has the meaning given by paragraph 13A

10

above;”;

“ “interest-bearing corporate security” means any interest-

bearing security other than—

(a)   

a security issued by the government of a territory;

(b)   

a share in a company;”;

15

“ “interest-bearing security” includes any loan stock or similar

security;”.

      (7)  

In paragraph 15(1)—

(a)   

in the definition of “relevant discounted security”, after “paragraphs

3” insert “, 13B(1)”;

20

(b)   

in the definition of “strip”, after ““strip”” insert “, except in the

expression “corporate strip”,”.

      (8)  

The amendments made by this paragraph have effect in any case where a

person acquires a corporate strip on or after 2nd December 2004 otherwise

than in pursuance of an agreement entered into before that date.

25

Transactions within groups: treatment of transferee company

20    (1)  

In Schedule 26 to FA 2002 (derivative contracts) paragraph 28 (transactions

within groups) is amended as follows.

      (2)  

For sub-paragraph (3) (the credits and debits to be brought into account)

substitute—

30

    “(3)  

For the purpose of determining the credits and debits to be

brought into account for the purposes of this Schedule in respect

of the derivative contract—

(a)   

for the accounting period in which the transaction or, as

the case may be, the first of the series of transactions takes

35

place, the transferor company shall be treated as having

entered into that transaction for a consideration equal to

the notional carrying value of the contract; and

(b)   

for any accounting period in which it is a party to the

contract, the transferee company shall be treated as if it

40

had acquired the contract for a consideration equal to its

notional carrying value.

           

For the purposes of this sub-paragraph the notional carrying value

is the amount that would have been the carrying value of the

derivative contract in the accounts of the transferor company if a

45

period of account had ended immediately before the date when

the company ceased to be party to the contract.”.

 

 

Finance Bill
Schedule 13 — Avoidance involving financial arrangements

253

 

      (3)  

In sub-paragraph (5), after “In this paragraph” insert the following

definition—

““carrying value” has the same meaning as it has for the

purposes of paragraph 50A;”.

      (4)  

Where the period of account mentioned in the second sentence of the sub-

5

paragraph (3) substituted by sub-paragraph (2) begins before 1st January

2005, “carrying value” shall be construed as if the period had begun on or

after that date.

      (5)  

The amendments made by this paragraph have effect in any case where the

relevant transaction is on or after 16th March 2005.

10

      (6)  

In this paragraph “the relevant transaction” means—

(a)   

the related transaction mentioned in sub-paragraph (2)(a) of

paragraph 28 of Schedule 26 to FA 2002,

(b)   

the first of the series of related transactions mentioned in sub-

paragraph (2)(b) of that paragraph, or

15

(c)   

the transfer mentioned in sub-paragraph (2)(c) or (2)(d) of that

paragraph,

           

by virtue of which that paragraph applies or would apply apart from

paragraph 30 of that Schedule.

Transactions within groups: fair value accounting

20

21    (1)  

In Schedule 26 to FA 2002 (derivative contracts) paragraph 30 (transactions

with groups: fair value accounting) is amended as follows.

      (2)  

In sub-paragraph (1), for paragraph (b) (treatment of transferee in respect of

the transaction) substitute—

“(b)   

paragraph 28(3)(b) shall have effect in relation to the

25

transferee company.”.

      (3)  

The amendment made by this paragraph has effect in any case where the

relevant transaction is on or after 16th March 2005.

      (4)  

In this paragraph “the relevant transaction” has the same meaning as in

paragraph 20.

30

Transferee leaving group after replacing transferor as party to derivative contract

22    (1)  

In Schedule 26 to FA 2002 (derivative contracts) after paragraph 30 insert—

“Transferee leaving group after replacing transferor as party to derivative contract

30A   (1)  

This paragraph applies in any case where—

(a)   

paragraph 28—

35

(i)   

applies by virtue of sub-paragraph (2)(a) of that

paragraph (“case A”), or

(ii)   

applies by virtue of sub-paragraph (2)(b) of that

paragraph (“case B”), but

(b)   

before the end of the relevant 6 year period, the transferee

40

company ceases to be a member of the relevant group.

      (2)  

In any such case, this Schedule shall have effect as if the transferee

company had—

 

 

Finance Bill
Schedule 13 — Avoidance involving financial arrangements

254

 

(a)   

immediately before that cessation, assigned its rights and

liabilities under the relevant derivative contract for a

consideration of an amount equal to their fair value at that

time, and

(b)   

immediately reacquired them for a consideration of the

5

same amount,

           

but only if a credit would in consequence of paragraph (a) fall to

be brought into account for the purposes of this Schedule by the

transferee company.

      (3)  

In this paragraph—

10

“the relevant 6 year period” means the period of 6 years

following—

(a)   

in case A, the transaction mentioned in paragraph

28(2)(a), or

(b)   

in case B, the last of the series of transactions

15

mentioned in paragraph 28(2)(b);

“the relevant derivative contract” means the derivative

contract mentioned in paragraph 28(1);

“the relevant group” means—

(a)   

in case A, the group mentioned in paragraph 28(2)(a),

20

or

(b)   

in case B, the group mentioned in paragraph 28(2)(b);

“the transferee company” means the company referred to as

such in paragraph 28(1).”.

      (2)  

The amendment made by this paragraph has effect where a company ceases

25

to be a member of a group on or after 16th March 2005.

Deeply discounted securities: corporate strips

23    (1)  

Chapter 8 of Part 4 of ITTOIA 2005 (profits from deeply discounted

securities) is amended as follows.

      (2)  

In section 430 (meaning of “deeply discounted security”) in subsection (6)

30

(subjections) omit “and” before the entry relating to section 443(1) and at the

end of that entry add “; and

section 452A(1) (corporate strips).”

      (3)  

In section 437 (transactions which are disposals) after subsection (4) insert—

“(5)   

In the case of interest-bearing corporate securities, further provision

35

about occasions counting as disposals is made by section 452F(2)(a).

(6)   

In the case of corporate strips, further provision about occasions

counting as disposals is made by section 452F(2)(a) and (3)(a).”.

      (4)  

In section 438 (timing of transfers and acquisitions) for subsection (4)

substitute—

40

“(4)   

This section is subject to—

section 445(7) (exchanges for and consolidation of strips);

section 452F(4) (conversion into and consolidations of corporate

strips).”.

 

 

Finance Bill
Schedule 13 — Avoidance involving financial arrangements

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      (5)  

In section 440 (market value disposals) for subsection (5) substitute—

“(5)   

Subsection (4) is subject to—

section 445(8) (exchanges for and consolidations of strips);

section 452F(5) (conversion into and consolidation of corporate

strips).”.

5

      (6)  

In section 441 (market value acquisitions) for subsection (3) substitute—

“(3)   

Subsection (2) is subject to—

section 445(8) (exchanges for and consolidations of strips);

section 452F(5) (conversion into and consolidations of corporate

strips).”.

10

      (7)  

Section 444 (meaning of “strip” in Chapter 8) after subsection (5) insert—

“(6)   

Nothing in this section affects the meaning of the expression

“corporate strip” in this Chapter (see section 452E).”.

      (8)  

After section 452 insert—

“Special rules for corporate strips

15

“452A   

 Application of this Chapter to corporate strips

(1)   

All corporate strips are treated as deeply discounted securities for

the purposes of this Chapter, whether or not they would otherwise

be so.

(2)   

This Chapter applies to corporate strips subject to the rules in—

20

(a)   

section 452F (corporate strips: acquisitions and disposals),

and

(b)   

section 452G (corporate strips: manipulation of acquisition,

transfer or redemption payments).

452B    

Meaning of “interest-bearing corporate security” in Chapter 8

25

(1)   

In this Chapter “interest-bearing corporate security” means any

interest-bearing security other than—

(a)   

a security issued by the government of a territory, or

(b)   

a share in a company.

(2)   

In this section “interest-bearing security” includes any loan stock or

30

similar security.

(3)   

Section 452D(4)(a) gives an extended meaning to references to

converting an interest-bearing corporate security into corporate

strips (and related expressions).

452C    

Conversion of interest-bearing corporate securities into corporate

35

strips

(1)   

For the purposes of this Chapter a person converts an interest-

bearing corporate security into corporate strips of the security if he

has an interest-bearing corporate security (“the converted corporate

security”) but—

40

(a)   

as a result of any scheme or arrangements, he acquires two or

more separate assets in place of the converted corporate

security,

 

 

Finance Bill
Schedule 13 — Avoidance involving financial arrangements

256

 

(b)   

each of those separate assets satisfies condition A,

(c)   

those separate assets, taken together, satisfy condition B, and

(d)   

at least one of those separate assets is not prevented from

being a corporate strip by section 452E(2) or (3),

   

and related expressions shall be construed accordingly.

5

(2)   

Condition A is that the asset—

(a)   

represents the right to, or

(b)   

secures,

   

one or more stripped payments.

(3)   

For the purposes of this section, a “stripped payment” is—

10

(a)   

the payment of, or

(b)   

a payment corresponding to,

   

the whole or a part of one or more payments (whether of interest or

principal) remaining to be made under the converted corporate

security.

15

(4)   

Condition B is that the assets, taken together,—

(a)   

represent the right to, or

(b)   

secure,

   

every payment (whether of interest or principal) remaining to be

made under the converted corporate security (or payments

20

corresponding to every such payment).

(5)   

Where a person—

(a)   

has an interest-bearing corporate security, but

(b)   

sells or transfers the right to one or more payments remaining

to be made under it (so that, as a result, there are two or more

25

separate assets which, taken together, satisfy condition B),

   

this Chapter has effect as if, as a result of a scheme or arrangements,

the person had acquired the separate assets in place of the security

immediately before the sale or transfer.

(6)   

After a balance has been struck for a dividend on an interest-bearing

30

corporate security, any payment to be made in respect of that

dividend shall, at times falling after that balance has been struck, be

treated for the purposes of this paragraph as not being a payment

remaining to be made under the security.

452D    

Conversion into corporate strips: lower level conversions

35

(1)   

For the purposes of this Chapter, section 452C also has effect in

relation to each of the separate assets mentioned in subsection (1) of

that section as if that separate asset were itself an interest-bearing

corporate security (if that is not in fact the case).

(2)   

In subsection (1), the reference to section 452C includes a reference to

40

that section has it has effect by virtue of this section.

(3)   

In the application of section 452C by virtue of this section, references

to payments the right to which a separate asset represents or secures

shall be construed in accordance with subsection (6) of that section.

(4)   

Where section 452C has effect by virtue of subsection (1)—

45

 

 

Finance Bill
Schedule 13 — Avoidance involving financial arrangements

257

 

(a)   

any reference in this Chapter to converting an interest-

bearing corporate security into corporate strips of the

security shall be construed accordingly, and

(b)   

section 452E (meaning of “corporate strip”) has effect

accordingly.

5

452E    

Meaning of “corporate strip” in Chapter 8

(1)   

In this Chapter “corporate strip” means any asset—

(a)   

which is, or has at any time been, one of the separate assets

mentioned in section 452C(1), and

(b)   

which is not prevented from being a corporate strip by

10

subsection (2) or (3).

(2)   

An asset is not a corporate strip if it—

(a)   

represents the right to, or

(b)   

secures,

   

payments of, or corresponding to, a part of every payment remaining

15

to be made under an interest-bearing corporate security or a

corporate strip.

(3)   

An asset is a corporate strip in the case of any person only if he

acquired it—

(a)   

on or after 2nd December 2004, and

20

(b)   

otherwise than in pursuance of an agreement entered into

before that date.

452F    

Corporate strips: acquisitions and disposals

(1)   

A person who converts an interest-bearing corporate security into

corporate strips of the security, is treated as having acquired each

25

corporate strip by the payment of an amount equal to—equation: cross[char[A],over[char[B],char[C]]]

   

where—

A is acquisition cost of the converted corporate security;

B is the market value of the corporate strip;

C is the total of the market values of all the separate assets

30

resulting from the conversion.

(2)   

If the converted corporate security is a deeply discounted security—

(a)   

its conversion into corporate strips is to be treated for the

purposes of this Chapter as a transfer of the security, but

(b)   

the amount payable on the transfer is taken to be an amount

35

equal to the acquisition cost of the converted corporate

security.

(3)   

For the purposes of this Chapter—

(a)   

the consolidation of a corporate strip with other corporate

strips into a single security is a disposal of the corporate strip

40

by the person consolidating it (whether or not it would be

apart from this subsection), and

(b)   

an amount equal to the market value of the corporate strip at

the consolidation is treated as payable on the disposal.

 

 

 
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