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Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 7 — Alternative finance arrangements

57

 

78      

Section 73 arrangements: profit share return not to be treated as distribution

Profit share return is not to be treated by virtue of section 209(2)(e)(iii) of ICTA

as being a distribution for the purposes of the Corporation Tax Acts.

Supplementary

79      

Further provisions

5

Schedule 4 (which contains further provision about the treatment of alternative

finance arrangements for the purposes of income tax, corporation tax and

capital gains tax) has effect.

80      

Application of Chapter

(1)   

This Chapter has effect in relation to alternative finance arrangements entered

10

into on or after 6th April 2005.

(2)   

To the extent provided by subsections (3) to (6), this Chapter also has effect in

relation to alternative finance arrangements falling within section 73 entered

into before 6th April 2005 under which profit share return is payable on or after

that date (“existing profit share arrangements”).

15

(3)   

For the purposes of income tax, this Chapter has effect in relation to payments

of profit share return made on or after 6th April 2005 under existing profit

share arrangements to a person other than a company.

(4)   

Where a company is a party to existing profit share arrangements—

(a)   

this Chapter has effect in relation to the company in relation to those

20

arrangements with effect from 6th April 2005, and

(b)   

for the purposes of Chapter 2 of Part 4 of FA 1996, the loan which is

treated by section 74 as made by or to the company is a loan made on

6th April 2005 of an amount equal to the notional carrying value of the

asset or liability representing the existing profit share arrangements.

25

(5)   

For the purposes of subsection (4)(b) the notional carrying value is the amount

which would have been the carrying value of the asset or liability in the

accounts of the company (prepared in accordance with generally accepted

accounting practice) if a period of accounts had ended immediately before 6th

April 2005.

30

(6)   

Section 78 has effect in relation to profit share return paid by a company on or

after 6th April 2005 under existing profit share arrangements.

81      

Interpretation of Chapter

In this Chapter—

“alternative finance arrangements” has the meaning given by section

35

70(1);

“alternative finance return” has the meaning given by section 71(5);

“financial institution” has the meaning given by section 70(2);

“profit share return” has the meaning given by section 73(2);

“property business” has the meaning given by section 263(6) of ITTOIA

40

2005.

 
 

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 8 — Film relief

58

 

Chapter 8

Film relief

Tax relief for limited-budget films

82      

Relief for production and acquisition expenditure on limited-budget films

(1)   

In section 48 of F(No.2)A 1997 (relief for production and acquisition

5

expenditure on limited-budget films), in subsection (2)—

(a)   

in paragraph (a) for “before 2nd July 2005” substitute “, if it is

expenditure to which section 42(3) of that Act applies, before 1st

October 2007”,

(b)   

after that paragraph insert—

10

“(aa)   

the first day of principal photography in relation to the

film concerned is before 1st April 2006;”, and

(c)   

in paragraph (c) after “1997” insert “but before 1st January 2007”.

(2)   

In section 139 of ITTOIA 2005 (certified master versions: production

expenditure on limited-budget films), in subsection (1)—

15

(a)   

in paragraph (aa) (requirement that film is completed) (inserted by

paragraph 30 of Schedule 5) after “period” insert “and before 1st

January 2007”, and

(b)   

for paragraph (b) (requirement that expenditure incurred before 2nd

July 2005) substitute—

20

“(b)   

the first day of principal photography was before 1st

April 2006,”.

(3)   

In section 140 of that Act (certified master versions: acquisition expenditure on

limited-budget films), in subsection (1)—

(a)   

in paragraph (aa) (requirement that film is completed) (inserted by

25

paragraph 30 of Schedule 5), after “period” insert “and before 1st

January 2007”,

(b)   

in paragraph (c) (requirement that expenditure incurred before 2nd

July 2005) for “2nd July 2005” substitute “1st October 2007”, and

(c)   

after that paragraph insert—

30

“(ca)   

the first day of principal photography was before 1st

April 2006,”.

(4)   

The Treasury may by order amend any of the enactments amended by

subsections (1) to (3), so as to substitute for a date inserted by or under this

section a later date.

35

(5)   

The amendments made by subsection (1) have effect in relation to claims made

under section 42 of F(No.2)A 1992 on or after 2nd July 2005.

(6)   

The amendments made by subsections (2) and (3) have effect in relation to

deductions made under section 139 or 140 of ITTOIA 2005 on or after 2nd July

2005.

40

 
 

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 8 — Film relief

59

 

Restrictions on relief

83      

Restrictions on relief for production and acquisition expenditure

(1)   

Schedule 5 (films: restrictions on relief for production and acquisition

expenditure) has effect.

(2)   

In that Schedule—

5

(a)   

Part 1 imposes restrictions on the circumstances in which relief may be

obtained;

(b)   

Part 2 imposes restrictions on the amount of relief which may be

obtained;

(c)   

Part 3 makes minor and consequential amendments;

10

(d)   

Part 4 contains interpretation provisions.

Deferred income agreements

84      

Deferred income agreements which exist when relief claimed

(1)   

This section applies where—

(a)   

in relation to a trade or business (“the relevant trade”), a company (“C”)

15

makes a claim on or after 2nd December 2004 under section 42 of

F(No.2)A 1992 for a deduction for a relevant period in respect of

expenditure relating to a film (“the claim”), and

(b)   

when the claim is made, one or more deferred income agreements in

respect of the film exist to which C is or has been a party and which C

20

entered into on or after 2nd December 2004.

(2)   

C is to be treated for corporation tax purposes as receiving, in the relevant

period in respect of which the claim is made, an amount of income from the

relevant trade equal to the amount of excess relief.

(3)   

If, at the time immediately after the end of the 15 year period, C is carrying on

25

the relevant trade, C is to be treated for the purposes of section 40B of F(No.2)A

1992 (allocation of expenditure to periods) as incurring at that time relevant

film expenditure of an amount equal to the amount of excess relief.

(4)   

The “amount of excess relief” is the amount given by the following formula—

   

equation: cross[char[D],id[plus[num[1.0000000000000000,"1"],minus[over[times[char[T],num[1.0000000000000000,

"1"]],times[char[T],num[2.0000000000000000,"2"]]]]]]]

30

   

where—

D is the amount which C is entitled to deduct under section 42 of F(No.2)A

1992 by virtue of the claim;

T1 is the number of days in the 15 year period;

T2 is the number of days in the period which begins with the operative

35

date and ends with the final deferral date.

(5)   

The “15 year period” means the period of 15 years which begins with the

operative date.

(6)   

The “operative date” means—

 
 

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 8 — Film relief

60

 

(a)   

where the claim is only in respect of expenditure incurred on the

acquisition of the original master version of the film, the date of that

acquisition, and

(b)   

in any other case, the date upon which the film is completed.

(7)   

The “final deferral date” means—

5

(a)   

the last date of deferral in relation to the deferred income agreement

mentioned in subsection (1)(b) (see section 85), or

(b)   

where there is more than one such agreement, the date which is the

latest of the last dates of deferral in relation to those agreements.

(8)   

“Relevant film expenditure” means expenditure of a revenue nature on the

10

production or acquisition of the original master version of the film.

(9)   

Any income received in a relevant period by virtue of this section is in addition

to any other income received in that period.

(10)   

This section is deemed to have come into force on 2nd December 2004.

85      

Meaning of “deferred income agreement in respect of a film”

15

(1)   

For the purposes of section 84, a “deferred income agreement in respect of a

film” means an agreement which satisfies condition A or condition B.

(2)   

Condition A is that the agreement (whether or not it supplements or varies

another agreement)—

(a)   

guarantees to any person an amount of income arising from the

20

exploitation of the film, and

(b)   

has the effect that the last date of deferral is a date after the end of the

15 year period.

(3)   

Condition B is that the agreement—

(a)   

supplements or varies another agreement (“the earlier agreement”)

25

which guarantees to any person an amount of income arising from the

exploitation of the film, and

(b)   

has the effect that the last date of deferral is a date which is after the end

of the 15 year period and after the last date of deferral (if any) in relation

to the earlier agreement.

30

(4)   

The “last date of deferral” means the last date upon which an amount of the

guaranteed income will or may arise.

(5)   

It does not matter whether any of the agreements mentioned in subsection (2)

or (3) existed before 2nd December 2004.

(6)   

For the purposes of this section—

35

(a)   

“agreement” means an agreement or series of agreements, and

(b)   

an agreement “guarantees” an amount of income if the agreement, or

any part of it, is designed to secure the receipt of that amount (or at least

that amount) of income.

(7)   

This section is deemed to have come into force on 2nd December 2004.

40

86      

Deferred income agreements entered into after relief claimed

(1)   

This section applies where—

 
 

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 8 — Film relief

61

 

(a)   

on or after 2nd December 2004, a company (“C”) enters into a deferred

income agreement in respect of a film in the course of carrying on a

trade or business (“the relevant trade”), and

(b)   

before C entered into the agreement, a claim was made under section

42 of F(No.2)A 1992, in relation to the relevant trade, for a deduction for

5

a relevant period in respect of expenditure relating to the film (“the

claim”).

(2)   

C is to be treated for corporation tax purposes as receiving, in the relevant

period in which C entered into the deferred income agreement, an amount of

income from the relevant trade equal to the net excess relief.

10

(3)   

If, at the time immediately after the end of the 15 year period, C is carrying on

the relevant trade, C is to be treated for the purposes of section 40B of F(No.2)A

1992 (allocation of expenditure to periods) as incurring at that time relevant

film expenditure of an amount equal to the net excess relief.

(4)   

The “net excess relief” is the amount of excess relief reduced (but not below nil)

15

by the recovered amount (if any).

(5)   

The “amount of excess relief” is the amount given by the following formula—

   

equation: cross[char[D],id[plus[num[1.0000000000000000,"1"],minus[over[times[char[T],num[1.0000000000000000,

"1"]],times[char[T],num[2.0000000000000000,"2"]]]]]]]

   

where—

D is the amount which there was an entitlement to deduct under section

20

42 of F(No.2)A 1992 by virtue of the claim;

T1 is the number of days in the 15 year period;

T2 is the number of days in the period which begins with the operative

date and ends with the final deferral date.

(6)   

The “recovered amount” means the total of—

25

(a)   

the amount (if any) treated under section 84 as income received by C

from the relevant trade as a result of any application of that section in

relation to the claim as a result of C’s entry into any deferred income

agreement in respect of the film concerned, and

(b)   

the total of any amounts treated under this section as income received

30

by C from the relevant trade as a result of any previous application of

this section in relation to the claim as a result of C’s entry into any

previous relevant agreements.

(7)   

The “15 year period” means the period of 15 years which begins with the

operative date.

35

(8)   

The “operative date” means—

(a)   

where the claim is only in respect of expenditure incurred on the

acquisition of the original master version of the film, the date of that

acquisition, and

(b)   

in any other case, the date upon which the film is completed.

40

(9)   

For the purposes of this section—

(a)   

“deferred income agreement in respect of a film” has the same meaning

as it has for the purposes of section 84,

 
 

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 8 — Film relief

62

 

(b)   

the “final deferral date” means the last date of deferral in relation to the

deferred income agreement mentioned in subsection (1)(a) (see section

85),

(c)   

“previous relevant agreement” means a deferred income agreement in

respect of the film concerned which was entered into by C after the

5

claim was made and before the entry into the deferred income

agreement mentioned in subsection (1)(a), and

(d)   

“relevant film expenditure” means expenditure of a revenue nature on

the production or acquisition of the original master version of the film.

(10)   

It does not matter for the purposes of subsection (1) whether the claim was

10

made before, or on or after, 2nd December 2004.

(11)   

Any income received in a relevant period by virtue of this section is in addition

to any other income received in that period.

(12)   

This section is deemed to have come into force on 2nd December 2004.

87      

Sections 84 to 86: supplementary

15

(1)   

For the purposes of sections 84 to 86 a company is not to be regarded as

entering into an agreement on or after 2nd December 2004 where the company

entered into the agreement in pursuance of an obligation of the company

which immediately before that date was an unconditional obligation.

(2)   

In determining, for the purposes of subsection (1), whether an obligation in

20

pursuance of which a company entered into an agreement was an

unconditional obligation immediately before 2nd December 2004, the

obligation is not to be regarded as a conditional obligation at that time by

reason only that it was contingent on a condition the fulfilment of which was

outside the control of the company.

25

(3)   

For the purposes of this section and sections 84 to 86

“film” is to be construed in accordance with paragraph 1 of Schedule 1 to

the Films Act 1985 (c. 21);

“original master version” is to be construed in accordance with section 43

of F(No.2)A 1992;

30

“relevant period” has the meaning given in section 40B of that Act.

(4)   

For the purposes of sections 84 to 86 a film is completed when it is first in a form

in which it can reasonably be regarded as ready for copies of it to be made and

distributed for presentation to the general public.

(5)   

This section is deemed to have come into force on 2nd December 2004.

35

88      

Transitional provision for years of assessment before the year 2005-06

(1)   

Section 84 has effect, for income tax purposes, for the year 2004-05 and earlier

years of assessment as if—

(a)   

in paragraph (a) of subsection (1), for “company” there were

substituted “person”, and

40

(b)   

in subsection (2) for “corporation tax” there were substituted “income

tax”.

(2)   

Section 86 has effect, for income tax purposes, for the year 2004-05 and earlier

years of assessment as if—

 
 

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 8 — Film relief

63

 

(a)   

in paragraph (a) of subsection (1), for “company” there were

substituted “person”, and

(b)   

in subsection (2) for “corporation tax” there were substituted “income

tax”.

(3)   

Section 87 has effect, for income tax purposes, for the year 2004-05 and earlier

5

years of assessment as if, in subsections (1) and (2), for “company” there were

substituted “person”.

(4)   

This section is deemed to have come into force on 2nd December 2004.

89      

Corresponding provision in ITTOIA 2005

(1)   

After section 142 of ITTOIA 2005 (when expenditure is incurred) insert—

10

“Deferred income agreements

142A    

Deferred income agreements which exist when deduction made

(1)   

This section applies where—

(a)   

in calculating the profits of a relevant period of a trade carried

on by a person (“P”), a deduction is made under any of sections

15

138 to 140 in respect of expenditure relating to a film (“the

relevant expenditure”), and

(b)   

when the deduction is made, one or more deferred income

agreements in respect of the film exist to which P is or has been

a party and which P entered into on or after 2nd December 2004.

20

(2)   

An amount equal to the amount of excess relief is brought into account

as a receipt in calculating the profits of the trade of the relevant period

in respect of which the deduction was made.

(3)   

If, at the time immediately after the end of the 15 year period, P is

carrying on the trade, P is to be treated for the purposes of section 135

25

(normal rules for allocating expenditure to periods) as incurring at that

time relevant film expenditure of an amount equal to the amount of

excess relief.

(4)   

The “amount of excess relief” is the amount given by the following

formula—

30

   

equation: cross[char[D],id[plus[num[1.0000000000000000,"1"],minus[over[times[char[T],num[1.0000000000000000,

"1"]],times[char[T],num[2.0000000000000000,"2"]]]]]]]

   

where—

D is the amount of the deduction allowed;

T1 is the number of days in the 15 year period;

T2 is the number of days in the period which begins with the

35

operative date and ends with the final deferral date.

(5)   

The “15 year period” means the period of 15 years which begins with

the operative date.

(6)   

The “operative date” means—

(a)   

where the relevant expenditure is acquisition expenditure only,

40

the date of the acquisition in question, and

 
 

 
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