Finance Bill

House of Commons

Session 2004 - 05
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Other Bills before Parliament

Finance Bill

Finance Bill
Schedule 13 — Avoidance involving financial arrangements
258

(4)
Section 438 (timing of transfers and acquisitions) does not apply to a
conversion within subsection (1) or a consolidation within
subsection (3).
(5)
Subsections (1) to (3) apply instead of section 440(4) (market value on
general conversions of deeply discounted securities) and 441 (market
5
value acquisitions).
(6)
For the purposes of this section, the acquisition cost of the converted
corporate security is the amount paid in respect of his acquisition of
the security by the person who has it immediately before the
conversion (no account being taken of any costs incurred in
10
connection with that acquisition).
(7)
References in this paragraph to the market value of a security given
or received in exchange for, or otherwise converted into, another are
references to its market value at the time of the exchange or
conversion.
15
452G
Corporate strips: manipulation of acquisition, transfer or redemption
payments
(1)
This section applies if—
(a)
as a result of any scheme or arrangement, an amount referred
to subsection (2)(a), (b) or (c) differs from the market value of
20
the corporate strip in a way specified in that subsection, and
(b)
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 arrangement.
25
(2)
The ways are that—
(a)
the amount paid by a person in respect of the acquisition of
the corporate strip is or was more than the market value of at
the time of that acquisition,
(b)
the amount payable to a person on transferring the corporate
30
strip is less than the market value at the time of the transfer,
or
(c)
on redemption of the corporate strip the amount payable to a
person, as the person holding the corporate strip, is less than
the market value on the day before redemption.
35
(3)
In a case within subsection (2)(a), for the purposes of section 439(1)
on transferring the corporate strip the person is treated as if the
person had paid to acquire the corporate strip an amount equal to the
market value of the corporate strip at the time of the acquisition.
(4)
In a case falling within subsection (2)(b), for those purposes the
40
person is treated as if the amount payable to the person on the
transfer were an amount equal to the market value of the corporate
strip at the time of the transfer.
(5)
In a case falling within subsection (2)(c), for those purposes the
person is treated as if the amount payable to the person on
45
redemption were an amount equal to the market value of the
corporate strip on the day before redemption.

Finance Bill
Schedule 14 — Financing of companies etc: transfer pricing and loan relationships
259

(6)
The market value of a corporate strip at any time is to be determined
for the purposes of this section without regard to any increase or
diminution in the value of the corporate strip as a result of the
scheme or arrangement mentioned in subsection (1).
(7)
For the purposes of this section, no account is to be taken of any
5
incidental expenses incurred in connection with any disposal or
acquisition of a corporate strip.”.
      (9)
ITTOIA 2005 shall have effect as if it had been originally enacted with the
amendments made by this paragraph.
Schedule 14
10
Section 134

Financing of companies etc: transfer pricing and loan relationships
Amendments of Schedule 28AA to ICTA
1     (1)
Schedule 28AA to ICTA (provision not at arm’s length) is amended as
follows.
      (2)
In paragraph 4 (participation in the management, control or capital of a
15
person), in sub-paragraph (2) (meaning of indirect participation) for “and
only if” substitute “and (subject to paragraphs 4A and 6(4C) below) only if”.
      (3)
After that paragraph insert—
“Persons acting together in relation to financing arrangements
4A    (1)
A person (“P”) shall be treated for the purposes of paragraph
20
1(1)(b)(i) above (but subject to sub-paragraph (7) below) as
indirectly participating in the management, control or capital of
another (“A”) at the time of the making or imposition of the actual
provision if—
(a)
the actual provision relates, to any extent, to financing
25
arrangements for A;
(b)
A is a body corporate or partnership;
(c)
P and other persons acted together in relation to the
financing arrangements; and
(d)
P would be taken to have control of A if, at any relevant
30
time, there were attributed to P the rights and powers of
each of the other persons mentioned in paragraph (c)
above.
      (2)
A person (“Q”) shall be treated for the purposes of paragraph
1(1)(b)(ii) above (but subject to sub-paragraph (7) below) as
35
indirectly participating in the management, control or capital of
each of the affected persons at the time of the making or
imposition of the actual provision if—
(a)
the actual provision relates, to any extent, to financing
arrangements for one of the affected persons (“B”);
40
(b)
B is a body corporate or partnership;
(c)
Q and other persons acted together in relation to the
financing arrangements; and

Finance Bill
Schedule 14 — Financing of companies etc: transfer pricing and loan relationships
260

(d)
Q would be taken to have control of both B and the other
affected person if, at any relevant time, there were
attributed to Q the rights and powers of each of the other
persons mentioned in paragraph (c) above.
      (3)
It is immaterial for the purposes of sub-paragraph (1)(c) or (2)(c)
5
above whether P or Q and the other persons acting together in
relation to the financing arrangements did so at the time of the
making or imposition of the actual provision or at some earlier
time.
      (4)
In sub-paragraph (1)(d) or (2)(d) “relevant time” means—
10
(a)
a time when P or Q and the other persons were acting
together in relation to the financing arrangements; or
(b)
a time in the period of six months beginning with the day
on which they ceased so to act.
      (5)
In determining for the purposes of sub-paragraph (1)(d) or (2)(d)
15
whether P or Q would be taken to have control of another person,
the rights and powers of any person (and not just P or Q) shall be
taken to include those that would be attributed to that person in
determining under paragraph 4 above whether he is indirectly
participating in the management, control or capital of the other
20
person.
      (6)
In this paragraph “financing arrangements” means arrangements
made for providing or guaranteeing, or otherwise in connection
with, any debt, capital or other form of finance.
      (7)
Where the condition in paragraph 1(1)(b) above would not be
25
satisfied but for this paragraph, paragraph 1(2) above applies only
to the extent that the actual provision relates to the financing
arrangements in question.”.
      (4)
After the paragraph inserted by sub-paragraph (3) above insert—
“Financing arrangements: anticipatory provision
30
4B    (1)
To the extent that it applies to provision relating to financing
arrangements, this Schedule has effect as if in paragraph 1(1)(b)
above the words “or within the period of six months beginning
with the day on which the actual provision was made or imposed”
were inserted immediately before sub-paragraph (i).
35
      (2)
In this paragraph “financing arrangements” has the same meaning
as in paragraph 4A above.”.
      (5)
In paragraph 6 (elimination of double counting), after sub-paragraph (4)
insert—
   “(4A)
A claim by the disadvantaged person for the purposes of this
40
paragraph shall not be made where—
(a)
the condition in paragraph 1(1)(b) above would not be
satisfied but for paragraph 4A above;
(b)
the actual provision is provision in relation to a security
issued by one of the affected persons (“the issuer”);
45

Finance Bill
Schedule 14 — Financing of companies etc: transfer pricing and loan relationships
261

(c)
a guarantee is provided in relation to the security by a
person with whom the issuer has a participatory
relationship.

In this sub-paragraph “security” and “guarantee” have the same
meaning as in paragraph 1A above.
5
     (4B)
For the purposes of sub-paragraph (4A) above, the cases where
one person has a “participatory relationship” with another are
those where—
(a)
one of them is directly or indirectly participating in the
management, control or capital of the other; or
10
(b)
the same person or persons is or are directly or indirectly
participating in the management, control or capital of each
of them.
     (4C)
Paragraph 4A above applies for the purposes of sub-paragraph
(4B) above as it applies for the purposes of paragraph 1(1)(b)
15
above.”.
Amendments of Schedule 9 to FA 1996
2     (1)
In Schedule 9 to FA 1996 (loan relationships: computational provisions),
paragraph 2 (late interest) is amended as follows.
      (2)
In sub-paragraph (1B)—
20
(a)
omit “, but not a CIS-based close company,” and the words after
paragraph (c);
(b)
in paragraph (a), at the end insert “or a person who controls a
company which is such a participator”;
(c)
in paragraph (b), after “who is” insert “, or who controls a company
25
which is,”;
(d)
for paragraph (c) substitute—
“(c)
a company controlled by such a participator or by
a person who controls a company which is such a
participator, or
30
(d)
a company in which such a participator has a major
interest.”;
(e)
at the end insert—

“This is subject to sub-paragraph (1E).”.
      (3)
After sub-paragraph (1D) insert—
35
   “(1E)
A case does not fall within sub-paragraph (1B) above if either of
the following exceptions applies.
     (1F)
The first exception applies where—
(a)
the debtor company is a CIS-based close company at all
such times as are mentioned in sub-paragraph (1B) above;
40
(b)
the person standing in the position of a creditor as respects
the loan relationship is not resident in a non-qualifying
territory at any such time; and
(c)
the debtor company is a small or medium-sized enterprise
for the relevant accounting period.
45
     (1G)
The second exception applies where—

Finance Bill
Schedule 14 — Financing of companies etc: transfer pricing and loan relationships
262

(a)
the debt is one that is owed to, or to persons acting for, a
CIS limited partnership;
(b)
no member of that partnership is resident in a non-
qualifying territory at any time in the relevant accounting
period;
5
(c)
the debtor company has received written notice from the
partnership containing information from which it appears
that the condition in paragraph (b) above is satisfied; and
(d)
the debtor company is a small or medium-sized enterprise
for the relevant accounting period.”.
10
      (4)
In sub-paragraph (6), at the appropriate places insert—
““non-qualifying territory” has the meaning given by
paragraph 5E of Schedule 28AA to the Taxes Act 1988;”;
““resident” has the meaning given by paragraph 5B(6) of
Schedule 28AA to the Taxes Act 1988;”;
15
““small or medium-sized enterprise” has the meaning given by
paragraph 5D of that Schedule.”.
3     (1)
Paragraph 18 of that Schedule (discounted securities of close companies) is
amended as follows.
      (2)
In sub-paragraph (1), omit paragraphs (aa) and (c).
20
      (3)
In sub-paragraph (1)(b)—
(a)
in sub-paragraph (i), at the end insert “or a person who controls a
company which is such a participator”;
(b)
in sub-paragraph (ii), after “an associate of” insert “a person who is,
or who controls a company which is,”;
25
(c)
for sub-paragraph (iii) substitute—
“(iii)
a company controlled by such a
participator or by a person who controls a
company which is such a participator.”.
      (4)
After sub-paragraph (1) insert—
30
  “(1ZA)
But for any such accounting period this paragraph shall not apply
in relation to that debtor relationship if any of the following
exceptions applies.”.
      (5)
In sub-paragraph (1A), for the words before paragraph (a) substitute “The
first exception applies where—”.
35
      (6)
After that sub-paragraph insert—
   “(1B)
The second exception applies where—
(a)
the issuing company is a CIS-based close company;
(b)
at all times in the period when there is such a person as is
described in sub-paragraph (1)(b) above, that person is not
40
resident in a non-qualifying territory; and
(c)
the issuing company is a small or medium-sized enterprise
for the period.
    (1C)
The third exception applies where—
(a)
the debt is one that is owed to, or to persons acting for, a
45
CIS limited partnership;

Finance Bill
Schedule 14 — Financing of companies etc: transfer pricing and loan relationships
263

(b)
no member of that partnership is resident in a non-
qualifying territory at any time in the period when there is
such a person as is described in sub-paragraph (1)(b)
above;
(c)
the debtor company has received written notice from the
5
partnership containing information from which it appears
that the condition in paragraph (b) above is satisfied; and
(d)
the issuing company is a small or medium-sized enterprise
for the period.”.
      (7)
In sub-paragraph (4), at the appropriate places insert—
10
““CIS-based close company” and “CIS limited partnership”
have the meaning given by paragraph 2(6) above;”;
““non-qualifying territory” has the meaning given by
paragraph 5E of Schedule 28AA to the Taxes Act 1988;”;
““resident” has the meaning given by paragraph 5B(6) of
15
Schedule 28AA to that Act;”;
““small or medium-sized enterprise” has the meaning given by
paragraph 5D of that Schedule.”.
Commencement and transitional provisions
4     (1)
Except where sub-paragraph (2) or (3) applies, the amendments made by
20
this Schedule have effect in relation to accounting periods beginning on or
after 4th March 2005.
      (2)
As regards any actual provision that constitutes, or gives rise to, a debtor
relationship entered into in pursuance of a contract—
(a)
made before 4th March 2005, and
25
(b)
not varied after that date, or not varied until after that date,

the amendments made by paragraph 1(2), (3) and (5) apply only in relation
to accounting periods beginning on or after 1st April 2007 or, in a case where
the contract is varied before 1st April 2007, in relation to accounting periods
beginning on or after the date of the variation.
30
      (3)
As regards a debtor relationship entered into in pursuance of a contract—
(a)
made before 4th March 2005, and
(b)
not varied after that date, or not varied until after that date,

the amendments made by paragraph 2(2)(a) and (e), (3) and (4) and
paragraph 3(2) and (4) to (7) apply only in relation to accounting periods
35
beginning on or after 1st April 2007 or, in a case where the contract is varied
before 1st April 2007, in relation to accounting periods beginning on or after
the date of the variation.
      (4)
In the case of a company’s accounting period (“the straddling period”) that
begins before and ends on or after a relevant date, for the purposes of sub-
40
paragraph (1) or (where it applies) sub-paragraph (2) or (3) the amendments
made by this Schedule have effect as if the straddling period consisted of—
(a)
one accounting period beginning with the straddling period and
ending with the day before the relevant date, and
(b)
a second accounting period beginning with the relevant date and
45
ending with the straddling period,

and the company’s profits and losses are to be computed accordingly for tax
purposes.

Finance Bill
Schedule 15 — Tonnage tax
Part 1 — Amendments of Schedule 22 to FA 2000
264

      (5)
A reference in sub-paragraph (2) or (3) to a variation of a contract does not
include a reference to a variation that does not affect the terms of the debtor
relationship in question.
      (6)
Sub-paragraph (3) is not to be read as allowing or requiring a debit to be
brought into account under Chapter 2 of Part 4 of FA 1996 for an accounting
5
period beginning on or after 1st April 2007, or the date of the variation, in
respect of any amount of interest or discount in respect of which a debit is so
brought into account for any earlier accounting period.
      (7)
In the application of this paragraph to a person within the charge to income
tax—
10
(a)
a reference to an accounting period is to be read as a reference to a
period of account;
(b)
a reference in sub-paragraph (4) to a company is to be read as a
reference to such a person.
      (8)
In this paragraph—
15
“actual provision” has the same meaning as in Schedule 28AA to ICTA
1988;
“debtor relationship”—
(a)
in relation to a company, has the meaning given by section
103(1) of FA 1996;
20
(b)
in relation to a person other than a company, has a
corresponding meaning;
“relevant date” means—
(a)
4th March 2005 for the purposes of sub-paragraph (1);
(b)
1st April 2007, or (as the case may be) the date of the variation,
25
for the purposes of sub-paragraph (2) or (3).
Schedule 15
Section 136

Tonnage tax
Part 1
Amendments of Schedule 22 to FA 2000
30
Introduction
1
Schedule 22 to FA 2000 shall be amended as follows.
Period for which election is in force
2     (1)
Paragraph 13 is amended as follows.
      (2)
After sub-paragraph (2) insert—
35
   “(2A)
A tonnage tax election ceases to be in force—
(a)
in the case of a company election, if a withdrawal notice in
respect of the company takes effect under paragraph 15A;
(b)
in the case of a group election, if a withdrawal notice in
respect of the group takes effect under that paragraph.”.
40