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

64

 

(b)   

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

(7)   

The “final deferral date” means—

(a)   

the last date of deferral in relation to the deferred income

agreement mentioned in subsection (1)(b) (see section 142B), or

(b)   

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

5

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

agreements.

(8)   

“Relevant film expenditure” means production or acquisition

expenditure relating to the original master version of the film.

142B    

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

10

(1)   

For the purposes of section 142A, 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)—

15

(a)   

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 after the end

of the 15 year period.

(3)   

Condition B is that the agreement—

20

(a)   

supplements or varies another agreement (“the earlier

agreement”) 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

25

(if any) in relation to the earlier agreement.

(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.

30

(6)   

For the purposes of this section—

(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.

35

142C    

Deferred income agreements entered into after deduction made

(1)   

This section applies where—

(a)   

on or after 2nd December 2004, a person (“P”) enters into a

deferred income agreement in respect of a film in the course of

carrying on a trade, and

40

(b)   

before P entered into the agreement, event A or event B

occurred in relation to the trade in respect of expenditure

relating to the film (“the relevant expenditure”).

(2)   

Event A occurs in relation to a trade in respect of expenditure relating

to a film when a deduction is made under any of sections 138 to 140 in

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

65

 

respect of that expenditure in calculating the profits of the trade of a

relevant period (“the deduction”).

(3)   

Event B occurs in relation to a trade in respect of expenditure relating

to a film when a claim is made under section 42 of F(No.2)A 1992, in

relation to the trade, for a deduction for a relevant period in respect of

5

that expenditure (“the claim”).

   

It does not matter whether the claim is made before, or on or after, 2nd

December 2004.

(4)   

An amount equal to the net excess relief is brought into account as a

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

10

which P entered into the deferred income agreement.

(5)   

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

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

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

15

relief.

(6)   

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

the operative date.

(7)   

The “operative date” means—

(a)   

where the relevant expenditure is acquisition expenditure only,

20

the date of the acquisition in question, and

(b)   

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

(8)   

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

as it has for the purposes of section 142A.

(9)   

“Relevant film expenditure” means production or acquisition

25

expenditure relating to the original master version of the film.

142D    

Meaning of the “net excess relief”

(1)   

For the purposes of section 142C the “net excess relief” is the amount of

excess relief reduced (but not below nil) by the recovered amount (if

any).

30

(2)   

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—

35

(a)   

in a case where event A has occurred, the amount of the

deduction allowed, and

(b)   

in a case where event B has occurred, the amount which

there was an entitlement to deduct under section 42 of

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

40

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.

 
 

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

66

 

(3)   

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

deferred income agreement mentioned in section 142C(1)(a) (see

section 142B).

(4)   

In a case where event A has occurred, the “recovered amount” means

the total of—

5

(a)   

the amount (if any) treated under section 142A as a receipt of

the trade as a result of any application of that section in relation

to the deduction as a result of P’s entry into any deferred

income agreement in respect of the film concerned, and

(b)   

the total of any amounts treated under section 142C as receipts

10

of the trade as a result of any previous application of that

section in relation to the deduction as a result of P’s entry into

any previous relevant agreements.

(5)   

In a case where event B has occurred, the “recovered amount” means

the total of—

15

(a)   

the amount (if any) treated under section 84 of the Finance Act

2005 as a receipt of the trade as a result of any application of that

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

deferred income agreement in respect of the film concerned,

(b)   

the total of any amounts treated under section 86 of the Finance

20

Act 2005 as receipts of the trade as a result of any application of

that section in relation to the claim as a result of P’s entry into

any previous relevant agreements, and

(c)   

the total of any amounts treated under section 142C as receipts

of the trade as a result of any previous application of that

25

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

previous relevant agreements.

(6)   

“Previous relevant agreement” means a deferred income agreement in

respect of the film concerned which was entered into by P—

(a)   

in the case of event A, after the deduction was made and before

30

the entry into the deferred income agreement mentioned in

section 142C(1)(a), and

(b)   

in the case of event B, after the claim was made and before the

entry into that deferred income agreement.

142E    

Sections 142A to 142D: time of entry into an agreement

35

(1)   

For the purposes of sections 142A to 142D a person is not to be regarded

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

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

person which immediately before that date was an unconditional

obligation.

40

(2)   

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

obligation in pursuance of which a person 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

45

fulfilment of which was outside the control of the person.”

(2)   

The amendment made by this section has effect for the year 2005-06 and

subsequent years of assessment.

 
 

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

67

 

Companies benefited by film relief: exit charges

90      

When a chargeable event occurs

(1)   

A chargeable event occurs in relation to a company (“C”) where an exit event

occurs in relation to C and the following conditions are satisfied—

(a)   

C was a film rights company immediately before the time of the exit

5

event, and

(b)   

C or another company—

(i)   

had made a relevant claim for a deduction under section 42 of

F(No.2)A 1992 (relief for production or acquisition expenditure

on a film) before that time, or

10

(ii)   

first makes such a claim at or after that time.

(2)   

C is a “film rights company” at a particular time if, at that time, it—

(a)   

is party to an agreement which guarantees it an amount of income

arising from the exploitation of a film (“the film”),

(b)   

carries on a trade or business which consists of or includes the

15

exploitation of films or the receipt of income derived from films (“the

relevant trade”), and

(c)   

is a 75% subsidiary of the principal company of a group of companies

(“the principal company”).

(3)   

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

20

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

amount) of income.

(4)   

An “exit event” occurs in relation to C on each occasion, on or after 2nd

December 2004, when one of the following happens—

(a)   

C ceases to be a 75% subsidiary of the principal company (“exit event

25

X”);

(b)   

C ceases to be within the charge to corporation tax (“exit event Y”);

(c)   

there is a relevant disposal by C at an undervalue within the meaning

given by section 92 (“exit event Z”).

(5)   

A “relevant claim” means a claim in respect of expenditure relating to the film

30

and, for the purposes of subsection (1)(b)(i), it does not matter whether the

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

(6)   

For the purposes of sections 91 to 95

“the guaranteed income agreement” means the agreement mentioned in

subsection (2)(a),

35

“the guaranteed income” means the income arising from the exploitation

of the film—

(a)   

whose receipt by C that agreement, or any part of it, is designed

to secure, and

(b)   

which would, if it were received by C at a time when it is

40

carrying on the relevant trade, be income from that trade,

   

and references to expressions which are defined in this section are to be

construed in accordance with this section.

(7)   

For the purposes of this section—

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

45

 
 

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

68

 

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

the Films Act 1985 (c. 21),

   

and an agreement, or part of an agreement, is to be regarded as designed to

secure the receipt by C of an amount (or at least an amount) if it was designed

to secure the receipt of that amount (or at least that amount) by another person

5

and C is that person’s successor under the agreement.

(8)   

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

91      

Consequences of a chargeable event: exit event X or Y

(1)   

This section applies where a chargeable event occurs in relation to C by virtue

of section 90 and the exit event in question is exit event X or Y.

10

(2)   

C is to be treated for corporation tax purposes as receiving, immediately before

the exit event, an amount of income from the relevant trade equal to the

chargeable amount.

(3)   

Where the exit event is exit event X, an amount equal to the chargeable amount

is to be treated for corporation tax purposes as a loss of the relevant trade

15

brought forward under section 393 of ICTA (relief of trading losses against

future trading profits) to the exit accounting period.

(4)   

But that loss may only be set off against income which—

(a)   

derives directly from the rights to guaranteed income under the

guaranteed income agreement, and

20

(b)   

is brought into account by C for the relevant trade after the exit event,

   

and, in particular, may not be set off against the income which C is treated as

receiving under subsection (2) by virtue of the exit event.

(5)   

The “chargeable amount” is the value immediately before the exit event of the

rights to guaranteed income under the guaranteed income agreement

25

calculated in accordance with section 94.

(6)   

Any income received in, or losses brought forward to, an accounting period by

virtue of this section are in addition to any other income received in, or losses

brought forward to, that period.

(7)   

In this section “exit accounting period” means the accounting period of C in

30

which the exit event occurs.

(8)   

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

92      

Exit event Z: a relevant disposal at an undervalue

(1)   

This section applies for the purposes of—

section 90(4)(c) (definition of exit event Z),

35

section 93 (consequences of a chargeable event: exit event Z), and

section 94 (valuation of the “disposed rights”).

(2)   

A “relevant disposal” means a disposal by C directly or indirectly to a third

party (“TP”) of rights to guaranteed income under the guaranteed income

agreement.

40

(3)   

The “disposed rights” are the rights to guaranteed income under the

guaranteed income agreement which are the object of the relevant disposal.

 
 

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

69

 

(4)   

A relevant disposal is at an undervalue where the amount of the disposal

consideration (“V1”) is less than the value of the disposed rights immediately

before the disposal calculated in accordance with section 94 (“V2”).

(5)   

It does not matter whether the disposed rights are disposed of alone or as part

of a larger disposal.

5

(6)   

Where the disposed rights are disposed of as part of a larger disposal, the

amount of the disposal consideration for the larger disposal which is

attributable to the relevant disposal is to be determined on such basis as is just

and reasonable.

(7)   

In this section—

10

“disposal” means any surrender, giving up, assignment or other disposal;

“disposal consideration”, in relation to a disposal, means the amount of

the consideration for the disposal brought into account as income of the

relevant trade by C at the date of that disposal;

“third party” means a person who is not the principal company or a 75%

15

subsidiary of the principal company.

(8)   

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

93      

Consequences of a chargeable event: exit event Z

(1)   

This section applies where a chargeable event occurs in relation to C by virtue

of section 90 and the exit event in question is exit event Z.

20

(2)   

C is to be treated for corporation tax purposes as receiving, immediately before

the exit event, an amount of income from the relevant trade equal to the

chargeable amount.

(3)   

Where TP is within the charge to corporation tax, an amount equal to the

chargeable amount is to be treated for corporation tax purposes as a loss of TP’s

25

trade brought forward under section 393 of ICTA (relief of trading losses

against future trading profits) to the accounting period in which TP acquires

the disposed rights.

(4)   

Where TP is within the charge to income tax, an amount equal to the

chargeable amount is to be treated for income tax purposes as a loss of TP’s

30

trade brought forward under section 385 of ICTA (carry-forward against

subsequent profits) to the year of assessment in which TP acquires the

disposed rights.

(5)   

But a loss brought forward under subsection (3) or (4) may only be set off

against income which derives directly from the disposed rights.

35

(6)   

The “chargeable amount” is the difference between V1 and V2.

(7)   

Any income received in, or losses brought forward to, an accounting period by

virtue of this section are in addition to any other income received in, or losses

brought forward to, that period.

(8)   

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

40

 
 

 
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