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
41

63
Sections 60 to 62: supplementary
(1)
For the purposes of sections 60 to 62 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.
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(2)
In determining, for the purposes of subsection (1), whether an obligation in
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
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outside the control of the company.
(3)
For the purposes of this section and sections 60 to 62—
“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
15
of F(No.2)A 1992;
“relevant period” has the meaning given in section 40B of that Act.
(4)
For the purposes of sections 60 to 62 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.
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(5)
This section is deemed to have come into force on 2nd December 2004.
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Transitional provision for years of assessment before the year 2005-06
(1)
Section 60 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
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substituted “person”, and
(b)
in subsection (2) for “corporation tax” there were substituted “income
tax”.
(2)
Section 62 has effect, for income tax purposes, for the year 2004-05 and earlier
years of assessment as if—
30
(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 63 has effect, for income tax purposes, for the year 2004-05 and earlier
35
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.

Finance (No. 2) Bill
Part 2 — Income tax, corporation tax and capital gains tax
Chapter 6 — Film relief
42

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Corresponding provision in ITTOIA 2005
(1)
After section 142 of ITTOIA 2005 (when expenditure is incurred) insert—
“Deferred income agreements
142A
Deferred income agreements which exist when deduction made
(1)
This section applies where—
5
(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
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
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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.
(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.
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(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
(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.
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(4)
The “amount of excess relief” is the amount given by the following
formula—


where—
D is the amount of the deduction allowed;
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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.
(5)
The “15 year period” means the period of 15 years which begins with
the operative date.
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(6)
The “operative date” means—
(a)
where the relevant expenditure is acquisition expenditure only,
the date of the acquisition in question, and
(b)
in any other case, the date upon which the film is completed.
(7)
The “final deferral date” means—
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(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
the latest of the last dates of deferral in relation to those
agreements.
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(8)
“Relevant film expenditure” means production or acquisition
expenditure relating to the original master version of the film.

Finance (No. 2) Bill
Part 2 — Income tax, corporation tax and capital gains tax
Chapter 6 — Film relief
43

142B
Meaning of “deferred income agreement in respect of a film”
(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
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varies another agreement)—
(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.
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(3)
Condition B is that the agreement—
(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
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the end of the 15 year period and after the last date of deferral
(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
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subsection (2) or (3) existed before 2nd December 2004.
(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
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that amount (or at least that amount) of income.
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
30
carrying on a trade, and
(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
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to a film when a deduction is made under any of sections 138 to 140 in
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
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relation to the trade, for a deduction for a relevant period in respect of
that expenditure (“the claim”).

It does not matter whether the claim is made before, or on or after, 2nd
December 2004.

Finance (No. 2) Bill
Part 2 — Income tax, corporation tax and capital gains tax
Chapter 6 — Film relief
44

(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
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
5
(normal rules for allocating expenditure to periods) as incurring at that
time relevant film expenditure of an amount equal to the net excess
relief.
(6)
The “15 year period” means the period of 15 years which begins with
the operative date.
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(7)
The “operative date” means—
(a)
where the relevant expenditure is acquisition expenditure only,
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
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as it has for the purposes of section 142A.
(9)
“Relevant film expenditure” means production or acquisition
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
20
excess relief reduced (but not below nil) by the recovered amount (if
any).
(2)
The “amount of excess relief” is the amount given by the following
formula—

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where—
D is—
(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
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there was an entitlement 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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(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—
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(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

Finance (No. 2) Bill
Part 2 — Income tax, corporation tax and capital gains tax
Chapter 6 — Film relief
45

(b)
the total of any amounts treated under section 142C as receipts
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
5
the total of—
(a)
the amount (if any) treated under section 60 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,
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(b)
the total of any amounts treated under section 62 of the Finance
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
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of the trade as a result of any previous application of that
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—
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(a)
in the case of event A, after the deduction was made and before
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.
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142E
Sections 142A to 142D: time of entry into an agreement
(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
30
obligation.
(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
35
that time by reason only that it was contingent on a condition the
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.
Companies benefited by film relief: exit charges
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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
event, and
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(b)
C or another company—

Finance (No. 2) Bill
Part 2 — Income tax, corporation tax and capital gains tax
Chapter 6 — Film relief
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(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
(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—
5
(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
exploitation of films or the receipt of income derived from films (“the
relevant trade”), and
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(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
part of it, is designed to secure the receipt by C of that amount (or at least that
amount) of income.
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(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
X”);
(b)
C ceases to be within the charge to corporation tax (“exit event Y”);
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(c)
there is a relevant disposal by C at an undervalue within the meaning
given by section 68 (“exit event Z”).
(5)
A “relevant claim” means a claim in respect of expenditure relating to the film
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.
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(6)
For the purposes of sections 67 to 71—
“the guaranteed income agreement” means the agreement mentioned in
subsection (2)(a),
“the guaranteed income” means the income arising from the exploitation
of the film—
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(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
carrying on the relevant trade, be income from that trade,

and references to expressions which are defined in this section are to be
35
construed in accordance with this section.
(7)
For the purposes of this section—
“agreement” means an agreement or series of agreements; and
“film” is to be construed in accordance with paragraph 1 of Schedule 1 to
the Films Act 1985 (c. 21),
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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
and C is that person’s successor under the agreement.
(8)
This section is deemed to have come into force on 2nd December 2004.
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