Finance (No. 2) Bill

House of Commons

Session 2004 - 05
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Finance (No. 2) Bill

Finance (No. 2) Bill
Part 2 — Income tax, corporation tax and capital gains tax
Chapter 6 — Film relief
36

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Application of Chapter
(1)
This Chapter has effect in relation to alternative finance arrangements entered
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 49 entered
5
into before 6th April 2005 under which profit share return is payable on or after
that date (“existing profit share arrangements”).
(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.
10
(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
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 50 as made by or to the company is a loan made on
15
6th April 2005 of an amount equal to the notional carrying value of the
asset or liability representing the existing profit share arrangements.
(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
20
accounting practice) if a period of accounts had ended immediately before 6th
April 2005.
(6)
Section 54 has effect in relation to profit share return paid by a company on or
after 6th April 2005 under existing profit share arrangements.
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Interpretation of Chapter
25
In this Chapter—
“alternative finance arrangements” has the meaning given by section
46(1);
“alternative finance return” has the meaning given by section 47(5);
“financial institution” has the meaning given by section 46(2);
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“profit share return” has the meaning given by section 49(2);
“property business” has the meaning given by section 263(6) of ITTOIA
2005.
Chapter 6
Film relief
35
Tax relief for limited-budget films
58
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
expenditure on limited-budget films), in subsection (2)—

Finance (No. 2) Bill
Part 2 — Income tax, corporation tax and capital gains tax
Chapter 6 — Film relief
37

(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—
“(aa)
the first day of principal photography in relation to the
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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)—
(a)
in paragraph (aa) (requirement that film is completed) (inserted by
10
paragraph 30 of Schedule 3) after “period” insert “and before 1st
January 2007”, and
(b)
for paragraph (b) (requirement that expenditure incurred before 2nd
July 2005) substitute—
“(b)
the first day of principal photography was before 1st
15
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
paragraph 30 of Schedule 3), after “period” insert “and before 1st
20
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—
“(ca)
the first day of principal photography was before 1st
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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.
(5)
The amendments made by subsection (1) have effect in relation to claims made
30
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.
Restrictions on relief
35
59
Restrictions on relief for production and acquisition expenditure
(1)
Schedule 3 (films: restrictions on relief for production and acquisition
expenditure) has effect.
(2)
In that Schedule—
(a)
Part 1 imposes restrictions on the circumstances in which relief may be
40
obtained;
(b)
Part 2 imposes restrictions on the amount of relief which may be
obtained;
(c)
Part 3 makes minor and consequential amendments;
(d)
Part 4 contains interpretation provisions.
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Finance (No. 2) Bill
Part 2 — Income tax, corporation tax and capital gains tax
Chapter 6 — Film relief
38

Deferred income agreements
60
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”)
makes a claim on or after 2nd December 2004 under section 42 of
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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
entered into on or after 2nd December 2004.
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(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
the relevant trade, C is to be treated for the purposes of section 40B of F(No.2)A
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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—


where—
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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
date and ends with the final deferral date.
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(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 claim is only in respect of expenditure incurred on the
acquisition of the original master version of the film, the date of that
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acquisition, and
(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 61), or
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(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
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
40
to any other income received in that period.
(10)
This section is deemed to have come into force on 2nd December 2004.

Finance (No. 2) Bill
Part 2 — Income tax, corporation tax and capital gains tax
Chapter 6 — Film relief
39

61
Meaning of “deferred income agreement in respect of a film”
(1)
For the purposes of section 60, 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)—
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(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—
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(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 (if any) in relation
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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.
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(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.
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(7)
This section is deemed to have come into force on 2nd December 2004.
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Deferred income agreements entered into after relief claimed
(1)
This section applies where—
(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
30
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
a relevant period in respect of expenditure relating to the film (“the
claim”).
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(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.
(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
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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)
by the recovered amount (if any).

Finance (No. 2) Bill
Part 2 — Income tax, corporation tax and capital gains tax
Chapter 6 — Film relief
40

(5)
The “amount of excess relief” is the amount given by the following formula—


where—
D is the amount which there was an entitlement to deduct under section
42 of F(No.2)A 1992 by virtue of the claim;
5
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—
(a)
the amount (if any) treated under section 60 as income received by C
10
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
by C from the relevant trade as a result of any previous application of
15
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.
(8)
The “operative date” means—
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(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.
(9)
For the purposes of this section—
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(a)
“deferred income agreement in respect of a film” has the same meaning
as it has for the purposes of section 60,
(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
61),
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(c)
“previous relevant agreement” means a deferred income agreement in
respect of the film concerned which was entered into by C after the
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
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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
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.
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(12)
This section is deemed to have come into force on 2nd December 2004.