House of Commons portcullis
House of Commons
Session 2004 - 05
Internet Publications
Other Bills before Parliament

Finance Bill


Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 10 — Avoidance involving tax arbitrage

87

 

109     

Interpretation

(1)   

This section has effect for the purposes of this Chapter.

(2)   

For the purposes of this Chapter—

(a)   

references to a scheme are references to any scheme, arrangements or

understanding of any kind whatever, whether or not legally

5

enforceable, involving a single transaction or two or more transactions;

(b)   

it shall be immaterial in determining whether any transactions have

formed or will form part of a series of transactions or scheme that the

parties to any of the transactions are different from the parties to

another of the transactions; and

10

(c)   

the cases in which any two or more transactions are to be taken as

forming part of a series of transactions or scheme shall include any case

in which it would be reasonable to assume that one or more of them—

(i)   

would not have been entered into independently of the other or

others, or

15

(ii)   

if entered into independently of the other or others, would not

have taken the same form or been on the same terms.

(3)   

A scheme achieves a UK tax advantage for a person if in consequence of the

scheme the person is in a position to obtain, or has obtained—

(a)   

a relief or increased relief from income tax or corporation tax,

20

(b)   

a repayment or increased repayment of income tax or corporation tax,

or

(c)   

the avoidance or reduction of a charge to income tax or corporation tax.

(4)   

In subsection (3)(a) the reference to relief includes a reference to a tax credit.

(5)   

For the purposes of subsection (3)(c) avoidance or reduction may in particular

25

be effected by—

(a)   

receipts accruing in such a way that the recipient does not pay or bear

tax on them, or

(b)   

a deduction in computing profits or gains.

110     

Commencement

30

(1)   

The deduction cases provisions have effect in relation to accounting periods of

a company beginning on or after 16th March 2005.

(2)   

Where an accounting period of a company begins before, and ends on or after

16th March 2005, it shall be assumed for the purposes of the deduction cases

provisions (and subsection (1) of this section) that that accounting period (“the

35

straddling period”) consists of two separate accounting periods—

(a)   

the first beginning with the straddling period and ending with the 15th

March 2005, and

(b)   

the second beginning with 16th March 2005 and ending with the

straddling period,

40

   

and the company’s profits and losses shall be computed accordingly for tax

purposes.

(3)   

The deduction cases provisions do not have effect so far as regards a

transaction to which a company is party on 16th March 2005 and which on that

date forms part of a scheme, if—

45

 
 

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 11 — Accounting practice and related matters

88

 

(a)   

the company is not on 16th March 2005 connected with a person who is

on that date also party to, or concerned in, the scheme, and

(b)   

the scheme ceases to exist before 1st July 2005.

   

Section 839 of ICTA applies for the purposes of this subsection.

(4)   

The receipts cases provisions have effect in relation to any contribution to the

5

capital of a company resident in the United Kingdom that is made on or after

16th March 2005.

(5)   

In this section—

“the deduction cases provisions” means—

(a)   

sections 104 and 105 and Schedule 6, and

10

(b)   

sections 108 and 109 so far as relating to the provisions in

paragraph (a);

“the receipts cases provisions” means—

(a)   

sections 106 and 107, and

(b)   

sections 108 and 109 so far as relating to the provisions in

15

paragraph (a).

Chapter 11

Accounting practice and related matters

111     

Accounting practice and related matters

(1)   

Schedule 7 (accounting practice and related matters) has effect.

20

(2)   

In that Schedule—

Part 1 makes provision about bad debts and related matters;

Part 2 makes other provision connected with accounting practice.

(3)   

Part 1 of the Schedule, so far as it amends provisions that have effect both for

income tax and corporation tax, has effect for the purposes of corporation tax

25

only.

(4)   

Except as otherwise provided, the provisions of the Schedule have effect for

periods of account beginning on or after 1st January 2005.

112     

Computation of profits: change of accounting basis

(1)   

In section 64 of FA 2002 (computation of profits: adjustment on change of

30

basis), for subsection (3) (meaning of “relevant change of accounting

approach”) substitute—

“(3)   

A “relevant change of accounting approach” means—

(a)   

a change of accounting principle or practice that, in accordance

with generally accepted accounting practice, gives rise to a prior

35

period adjustment, or

(b)   

a change from using UK generally accepted accounting practice

to using generally accepted accounting practice with respect to

accounts drawn up in accordance with international accounting

standards.”.

40

 
 

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 11 — Accounting practice and related matters

89

 

(2)   

In paragraphs 4(3) and 5(2) of Schedule 22 to FA 2002 (adjustments treated as

arising on the last day of the first period of account for which the new basis is

adopted), for “last day” substitute “first day”.

(3)   

The amendments in this section have effect for periods of account beginning on

or after 1st January 2005.

5

113     

Change of accounting practice: deferment of transitional adjustments

(1)   

This section applies where—

(a)   

a company enters into a transaction on or after 14th December 2004,

otherwise than in the ordinary course of its business,

(b)   

as a result of the transaction it incurs a loss in respect of a loan

10

relationship or derivative contract in respect of which, apart from this

section, a debit would fall to be brought into account for tax purposes

in a period of account beginning before 1st January 2005,

(c)   

the sole or main purpose of the company in entering into the

transaction at the time it did was to enable it to bring a debit into

15

account for tax purposes in such a period, and

(d)   

if the company had continued to hold the asset or liability representing

the loan relationship or derivative contract, as it was held immediately

before the transaction referred to in paragraph (a), in its first period of

account beginning on or after 1st January 2005, a debit would have

20

arisen in respect of the loan relationship or derivative contract in that

period that was a prescribed debit for the purposes of regulation 3 of

the Loan Relationship and Derivative Contracts (Change of Accounting

Practice) Regulations 2004 (SI 2004/3271) (debits not to be brought into

account until the company’s first period beginning on or after 1st

25

January 2006).

(2)   

Where this section applies no such debit as is mentioned in subsection (1)(b)

shall be brought into account in the period of account mentioned there, but a

debit of the same amount shall instead be brought into account as if it were a

prescribed debit for the purposes of the regulation referred to in subsection

30

(1)(d) (even though the loss giving rise to the debit was incurred before 1st

January 2005).

(3)   

In determining the sole or main purpose of a company for the purposes of

subsection (1)(c) regard shall be had to anything done by a connected company

that would be relevant for the purposes of that determination if done by the

35

company in question.

   

For this purpose companies are connected if they are connected persons within

the meaning of section 839 of ICTA.

(4)   

For the purposes of subsection (1)(d) it shall be assumed that the loan

relationship or derivative contract has the same value at the beginning of the

40

company’s first period of account beginning on or after 1st January 2005 as it

had at the time of the transaction referred to in subsection (1)(a).

(5)   

This section does not apply where the transaction is entered into in pursuance

of legally binding arrangements entered into before 14th December 2004.

(6)   

In this section, references to a company entering into a transaction include a

45

reference to the company, or the directors of the company, taking a decision

about a loan relationship or derivative contract that affects its treatment for

 
 

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 11 — Accounting practice and related matters

90

 

accounting purposes (other than a decision to prepare some or all of the

company’s accounts in accordance with international accounting standards).

114     

Application of accounting standards to securitisation companies

(1)   

For the purposes of the Corporation Tax Acts as they apply to a securitisation

company in relation to a period of account—

5

(a)   

beginning on or after 1st January 2005, and

(b)   

ending before 1st January 2007,

   

generally accepted accounting practice shall be taken to be UK generally

accepted accounting practice as it applied for a period of account ending on

31st December 2004.

10

(2)   

For the purposes of this section a “securitisation company” means a company

that is—

(a)   

a note-issuing company,

(b)   

an asset-holding company,

(c)   

an intermediate borrowing company,

15

(d)   

a warehouse company, or

(e)   

a commercial paper funded company,

   

as defined below.

(3)   

A “note-issuing company” means a company in relation to which the following

conditions are met—

20

(a)   

it is party as debtor to a capital market investment,

(b)   

the securities that represent the capital market investment are issued

wholly or mainly to independent persons,

(c)   

the capital market investment is part of a capital market arrangement,

and

25

(d)   

the total value of the capital market investments made under that

capital market arrangement is at least £50 million.

(4)   

An “asset-holding company” means a company—

(a)   

whose business (apart from any incidental activities) consists in

acquiring, holding and managing assets forming the whole or part of

30

the security for a capital market arrangement entered into by a note-

issuing company, and

(b)   

whose liabilities representing debtor relationships are owed wholly or

mainly to a note-issuing company or intermediate borrowing

company.

35

(5)   

An “intermediate borrowing company” means a company—

(a)   

whose only business is to enter into and be a party to creditor

relationships with an asset-holding company, and

(b)   

whose liabilities representing debtor relationships are owed wholly, or

substantially wholly, to a note-issuing company.

40

(6)   

A “warehouse company” means a company whose business consists wholly of

acquiring and holding financial assets for the purpose—

(a)   

of transferring them to a company (whether or not yet in existence) that

at the time of the transfer is, or as a result of the transfer will become,

an asset-holding or note-issuing company, or

45

(b)   

of itself becoming an asset-holding or note-issuing company.

 
 

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 11 — Accounting practice and related matters

91

 

(7)   

A “commercial paper funded company” means—

(a)   

a company that was an asset-holding company but whose obligations

under debtor relationships to a note-issuing company or intermediate

borrowing company—

(i)   

have been transferred to, or

5

(ii)   

have been replaced by obligations under debtor relationships

to,

   

one or more companies carrying on a business of banking, or

(b)   

a company that was an intermediate borrowing company but whose

obligations under debtor relationships to a note-issuing company—

10

(i)   

have been transferred to, or

(ii)   

have been replaced by obligations under debtor relationships

to,

   

one or more companies carrying on a business of banking.

(8)   

In this section—

15

“asset” includes any option, future or contract for differences as defined

for the purposes of Schedule 26 to FA 2002 (derivative contracts) (see

paragraph 12 of that Schedule);

“capital market investment” and “capital market arrangement” have the

same meaning as in section 72B(1) of the Insolvency Act 1986 (c. 45) (see

20

paragraphs 1, 2 and 3 of Schedule 2A to that Act);

“company” includes a partnership;

“financial asset” has the meaning it has for accounting purposes; and

“independent persons” means persons who are not connected with the

company.

25

(9)   

Section 839 of ICTA (connected persons) applies for the purposes of the

definition above of “independent persons”, except that in applying the

definition of “control” in that section a person is not to be treated as a

participator in a company by reason only that he is a loan creditor of the

company.

30

115     

Taxation of securitisation companies

(1)   

The Treasury may make provision by regulations as to the application of the

Corporation Tax Acts in relation to a securitisation company.

(2)   

For the purposes of this section a “securitisation company” means a

company—

35

(a)   

in relation to which the following conditions are met—

(i)   

it is party as debtor to a capital market investment,

(ii)   

securities representing that capital market investment are

issued, and

(iii)   

the capital market investment is part of a capital market

40

arrangement,

   

and which meets such other conditions as may be specified; or

(b)   

of a description specified by reference to its relationship, direct or

indirect, with a company within paragraph (a).

(3)   

The regulations may, in particular—

45

(a)   

provide for the application, modification or non-application of any of

the provisions of the Corporation Tax Acts;

 
 

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 11 — Accounting practice and related matters

92

 

(b)   

provide—

(i)   

that the amount of profits of any specified description (before

any such adjustments as are mentioned in paragraph (c)) is to be

taken to be such amount, or is to be calculated on such basis, as

may be specified, and

5

(ii)   

that that amount is to be brought into account for corporation

tax purposes instead of any specified amount that would

otherwise fall to be brought into account;

(c)   

provide for specified adjustments to be made to the amount to be

brought into account for corporation tax purposes;

10

(d)   

provide—

(i)   

that the regulations apply to a company only if an election to

that effect is made,

(ii)   

that any such election must be made in the company’s first

company tax return after the passing of this Act and has effect

15

in relation to every period of account of the company beginning

on or after 1st January 2005, and

(iii)   

that once subject to the regulations a company shall continue to

be so for all subsequent periods of account;

(e)   

impose conditions that must be met if a company is to have, or continue

20

to have, the benefit of the regulations; and

(f)   

provide for the consequences of failing to meet any specified condition

(which may include recalculating, on the basis that the regulations did

not apply, the company’s profits for previous periods).

(4)   

The regulations may make different provision for different descriptions of

25

company.

(5)   

Regulations under this section may—

(a)   

in the case of—

(i)   

regulations made before 1st January 2006, or

(ii)   

the first regulations under this section (if made on or after that

30

date),

   

make provision having effect for periods of account beginning on or

after 1st January 2005;

(b)   

in any case, make provision having effect from the beginning of periods

of account current when the regulations are made.

35

(6)   

In this section—

“capital market investment” and “capital market arrangement” have the

same meaning as in section 72B(1) of the Insolvency Act 1986 (c. 45) (see

paragraphs 1, 2 and 3 of Schedule 2A to that Act); and

“specified” means specified in regulations under this section.

40

(7)   

The first regulations under this section shall not be made unless a draft of the

regulations has been laid before and approved by a resolution of the House of

Commons.

 
 

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 12 — International matters

93

 

Chapter 12

International matters

Double taxation relief: general

116     

Dividends by reference to which a deduction is allowed: no underlying tax

(1)   

In section 799 of ICTA (computation of underlying tax) after subsection (2)

5

insert—

“(2A)   

No underlying tax shall be taken into account under subsection (1)

above in the case of a dividend if, under the law of any territory outside

the United Kingdom, a deduction is allowed to a resident of that

territory in respect of an amount determined by reference to the

10

dividend.”.

(2)   

The amendments made by this section have effect in relation to dividends paid

on or after 16th March 2005.

117     

Implementation of the amended Parent/Subsidiary Directive

(1)   

Section 801 of ICTA (dividends paid between related companies: relief for UK

15

and third country taxes) is amended as follows.

(2)   

After subsection (5) (meaning of one company being related to another)

insert—

“(5A)   

For the purposes of subsections (2) and (3) above (including any

determination of the extent to which underlying tax paid by the third,

20

fourth or subsequent company in question would be taken into account

under this Part if the conditions specified for the purpose in subsection

(2) above were satisfied) a company is also related to another company

if that other company—

(a)   

controls directly or indirectly, or

25

(b)   

is a subsidiary of a company which controls directly or

indirectly,

   

not less than 10% of the ordinary share capital of the first-mentioned

company.”.

(3)   

The amendment made by this section has effect where the dividend mentioned

30

in section 799(1) of ICTA is paid on or after 1st January 2005.

Double taxation relief: restrictions

118     

Limits on credit: income tax and corporation tax: trading profits

(1)   

For sections 798 to 798B of ICTA (double taxation relief: foreign interest and

dividends) substitute—

35

“798    

Section 796: trade income

(1)   

This section has effect in relation to the application of section 796(1) to

the allowance of credit for foreign tax against income tax in respect of

trade income.

 
 

 
previous section contents continue
 
House of Commons home page Houses of Parliament home page House of Lords home page search page enquiries

© Parliamentary copyright 2005
Revised 24 March 2005