Finance Bill

House of Commons

Session 2005 - 06
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Finance Bill

Finance Bill
Schedule 8 — Financing of companies etc: transfer pricing and loan relationships
125

each of the affected persons at the time of the making or
imposition of the actual provision if—
(a)
the actual provision relates, to any extent, to financing
arrangements for one of the affected persons (“B”);
(b)
B is a body corporate or partnership;
5
(c)
Q and other persons acted together in relation to the
financing arrangements; and
(d)
Q would be taken to have control of both B and the other
affected person if, at any relevant time, there were
attributed to Q the rights and powers of each of the other
10
persons mentioned in paragraph (c) above.
      (3)
It is immaterial for the purposes of sub-paragraph (1)(c) or (2)(c)
above whether P or Q and the other persons acting together in
relation to the financing arrangements did so at the time of the
making or imposition of the actual provision or at some earlier
15
time.
      (4)
In sub-paragraph (1)(d) or (2)(d) “relevant time” means—
(a)
a time when P or Q and the other persons were acting
together in relation to the financing arrangements; or
(b)
a time in the period of six months beginning with the day
20
on which they ceased so to act.
      (5)
In determining for the purposes of sub-paragraph (1)(d) or (2)(d)
whether P or Q would be taken to have control of another person,
the rights and powers of any person (and not just P or Q) shall be
taken to include those that would be attributed to that person in
25
determining under paragraph 4 above whether he is indirectly
participating in the management, control or capital of the other
person.
      (6)
In this paragraph “financing arrangements” means arrangements
made for providing or guaranteeing, or otherwise in connection
30
with, any debt, capital or other form of finance.
      (7)
Where the condition in paragraph 1(1)(b) above would not be
satisfied but for this paragraph, paragraph 1(2) above applies only
to the extent that the actual provision relates to the financing
arrangements in question.”.
35
      (4)
After the paragraph inserted by sub-paragraph (3) above insert—
“Financing arrangements: anticipatory provision
4B    (1)
To the extent that it applies to provision relating to financing
arrangements, this Schedule has effect as if in paragraph 1(1)(b)
above the words “or within the period of six months beginning
40
with the day on which the actual provision was made or imposed”
were inserted immediately before sub-paragraph (i).
      (2)
In this paragraph “financing arrangements” has the same meaning
as in paragraph 4A above.”.
      (5)
In paragraph 6 (elimination of double counting), after sub-paragraph (4)
45

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Schedule 8 — Financing of companies etc: transfer pricing and loan relationships
126

insert—
   “(4A)
A claim by the disadvantaged person for the purposes of this
paragraph shall not be made where—
(a)
the condition in paragraph 1(1)(b) above would not be
satisfied but for paragraph 4A above;
5
(b)
the actual provision is provision in relation to a security
issued by one of the affected persons (“the issuer”);
(c)
a guarantee is provided in relation to the security by a
person with whom the issuer has a participatory
relationship.
10

In this sub-paragraph “security” and “guarantee” have the same
meaning as in paragraph 1A above.
     (4B)
For the purposes of sub-paragraph (4A) above, the cases where
one person has a “participatory relationship” with another are
those where—
15
(a)
one of them is directly or indirectly participating in the
management, control or capital of the other; or
(b)
the same person or persons is or are directly or indirectly
participating in the management, control or capital of each
of them.
20
     (4C)
Paragraph 4A above applies for the purposes of sub-paragraph
(4B) above as it applies for the purposes of paragraph 1(1)(b)
above.”.
Amendments of Schedule 9 to FA 1996
2     (1)
In Schedule 9 to FA 1996 (loan relationships: computational provisions),
25
paragraph 2 (late interest) is amended as follows.
      (2)
In sub-paragraph (1B)—
(a)
omit “, but not a CIS-based close company,” and the words after
paragraph (c);
(b)
in paragraph (a), at the end insert “or a person who controls a
30
company which is such a participator”;
(c)
in paragraph (b), after “who is” insert “, or who controls a company
which is,”;
(d)
for paragraph (c) substitute—
“(c)
a company controlled by such a participator or by
35
a person who controls a company which is such a
participator, or
(d)
a company in which such a participator has a major
interest.”;
(e)
at the end insert—
40

“This is subject to sub-paragraph (1E).”.
      (3)
After sub-paragraph (1D) insert—
   “(1E)
A case does not fall within sub-paragraph (1B) above if either of
the following exceptions applies.
     (1F)
The first exception applies where—
45

Finance Bill
Schedule 8 — Financing of companies etc: transfer pricing and loan relationships
127

(a)
the debtor company is a CIS-based close company at all
such times as are mentioned in sub-paragraph (1B) above;
(b)
the person standing in the position of a creditor as respects
the loan relationship is not resident in a non-qualifying
territory at any such time; and
5
(c)
the debtor company is a small or medium-sized enterprise
for the relevant accounting period.
     (1G)
The second exception applies where—
(a)
the debt is one that is owed to, or to persons acting for, a
CIS limited partnership;
10
(b)
no member of that partnership is resident in a non-
qualifying territory at any time in the relevant accounting
period;
(c)
the debtor company has received written notice from the
partnership containing information from which it appears
15
that the condition in paragraph (b) above is satisfied; and
(d)
the debtor company is a small or medium-sized enterprise
for the relevant accounting period.”.
      (4)
In sub-paragraph (6), at the appropriate places insert—
““non-qualifying territory” has the meaning given by
20
paragraph 5E of Schedule 28AA to the Taxes Act 1988;”;
““resident” has the meaning given by paragraph 5B(6) of
Schedule 28AA to the Taxes Act 1988;”;
““small or medium-sized enterprise” has the meaning given by
paragraph 5D of that Schedule.”.
25
3     (1)
Paragraph 18 of that Schedule (discounted securities of close companies) is
amended as follows.
      (2)
In sub-paragraph (1), omit paragraphs (aa) and (c).
      (3)
In sub-paragraph (1)(b)—
(a)
in sub-paragraph (i), at the end insert “or a person who controls a
30
company which is such a participator”;
(b)
in sub-paragraph (ii), after “an associate of” insert “a person who is,
or who controls a company which is,”;
(c)
for sub-paragraph (iii) substitute—
“(iii)
a company controlled by such a
35
participator or by a person who controls a
company which is such a participator.”.
      (4)
After sub-paragraph (1) insert—
  “(1ZA)
But for any such accounting period this paragraph shall not apply
in relation to that debtor relationship if any of the following
40
exceptions applies.”.
      (5)
In sub-paragraph (1A), for the words before paragraph (a) substitute “The
first exception applies where—”.
      (6)
After that sub-paragraph insert—
   “(1B)
The second exception applies where—
45
(a)
the issuing company is a CIS-based close company;

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Schedule 8 — Financing of companies etc: transfer pricing and loan relationships
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(b)
at all times in the period when there is such a person as is
described in sub-paragraph (1)(b) above, that person is not
resident in a non-qualifying territory; and
(c)
the issuing company is a small or medium-sized enterprise
for the period.
5
    (1C)
The third exception applies where—
(a)
the debt is one that is owed to, or to persons acting for, a
CIS limited partnership;
(b)
no member of that partnership is resident in a non-
qualifying territory at any time in the period when there is
10
such a person as is described in sub-paragraph (1)(b)
above;
(c)
the debtor company has received written notice from the
partnership containing information from which it appears
that the condition in paragraph (b) above is satisfied; and
15
(d)
the issuing company is a small or medium-sized enterprise
for the period.”.
      (7)
In sub-paragraph (4), at the appropriate places insert—
““CIS-based close company” and “CIS limited partnership”
have the meaning given by paragraph 2(6) above;”;
20
““non-qualifying territory” has the meaning given by
paragraph 5E of Schedule 28AA to the Taxes Act 1988;”;
““resident” has the meaning given by paragraph 5B(6) of
Schedule 28AA to that Act;”;
““small or medium-sized enterprise” has the meaning given by
25
paragraph 5D of that Schedule.”.
Commencement and transitional provisions
4     (1)
Except where sub-paragraph (2) or (3) applies, the amendments made by
this Schedule have effect in relation to accounting periods beginning on or
after 4th March 2005.
30
      (2)
As regards any actual provision that constitutes, or gives rise to, a debtor
relationship entered into in pursuance of a contract—
(a)
made before 4th March 2005, and
(b)
not varied after that date, or not varied until after that date,

the amendments made by paragraph 1(2), (3) and (5) apply only in relation
35
to accounting periods beginning on or after 1st April 2007 or, in a case where
the contract is varied before 1st April 2007, in relation to accounting periods
beginning on or after the date of the variation.
      (3)
As regards a debtor relationship entered into in pursuance of a contract—
(a)
made before 4th March 2005, and
40
(b)
not varied after that date, or not varied until after that date,

the amendments made by paragraph 2(2)(a) and (e), (3) and (4) and
paragraph 3(2) and (4) to (7) apply only in relation to accounting periods
beginning on or after 1st April 2007 or, in a case where the contract is varied
before 1st April 2007, in relation to accounting periods beginning on or after
45
the date of the variation.

Finance Bill
Schedule 9 — Insurance companies etc
129

      (4)
In the case of a company’s accounting period (“the straddling period”) that
begins before and ends on or after a relevant date, for the purposes of sub-
paragraph (1) or (where it applies) sub-paragraph (2) or (3) the amendments
made by this Schedule have effect as if the straddling period consisted of—
(a)
one accounting period beginning with the straddling period and
5
ending with the day before the relevant date, and
(b)
a second accounting period beginning with the relevant date and
ending with the straddling period,

and the company’s profits and losses are to be computed accordingly for tax
purposes.
10
      (5)
A reference in sub-paragraph (2) or (3) to a variation of a contract does not
include a reference to a variation that does not affect the terms of the debtor
relationship in question.
      (6)
Sub-paragraph (3) is not to be read as allowing or requiring a debit to be
brought into account under Chapter 2 of Part 4 of FA 1996 for an accounting
15
period beginning on or after 1st April 2007, or the date of the variation, in
respect of any amount of interest or discount in respect of which a debit is so
brought into account for any earlier accounting period.
      (7)
In the application of this paragraph to a person within the charge to income
tax—
20
(a)
a reference to an accounting period is to be read as a reference to a
period of account;
(b)
a reference in sub-paragraph (4) to a company is to be read as a
reference to such a person.
      (8)
In this paragraph—
25
“actual provision” has the same meaning as in Schedule 28AA to ICTA
1988;
“debtor relationship”—
(a)
in relation to a company, has the meaning given by section
103(1) of FA 1996;
30
(b)
in relation to a person other than a company, has a
corresponding meaning;
“relevant date” means—
(a)
4th March 2005 for the purposes of sub-paragraph (1);
(b)
1st April 2007, or (as the case may be) the date of the variation,
35
for the purposes of sub-paragraph (2) or (3).
Schedule 9
Section 42

Insurance companies etc
Expenses of insurance companies
1     (1)
Section 76 of ICTA is amended as follows.
40
      (2)
In subsection (8) (expenses attributable to basic life assurance and general
annuity business for the purposes of Step 1 are to be those so attributable
under proper internal accounting practice) in the second sentence (meaning
of “proper internal accounting practice”) at the end of paragraph (b) insert

Finance Bill
Schedule 9 — Insurance companies etc
130

“, or
(c)
the Integrated Prudential Sourcebook.”.
      (3)
The amendment made by this paragraph has effect in relation to periods of
account ending on or after 31st December 2004.
Interpretative provisions relating to insurance companies
5
2     (1)
Section 431(2) of ICTA is amended as follows.
      (2)
Insert the following definition at the appropriate place—
““the Integrated Prudential Sourcebook” means the Integrated
Prudential Sourcebook made by the Financial Services
Authority under the Financial Services and Markets Act
10
2000;”.
      (3)
For the definition of “liabilities” substitute—
““liabilities”, in relation to an insurance company, means—
(a)
the mathematical reserves of the company as
determined in accordance with chapter 7.3 of the
15
Integrated Prudential Sourcebook, and
(b)
liabilities of the company (whose value falls to be
determined in accordance with chapter 1.3 of that
Sourcebook) which arise from deposit back
arrangements;
20
and for this purpose “deposit back arrangements” has the
same meaning as in that Sourcebook;”.
      (4)
Omit the definition of “long-term liabilities”.
      (5)
For the definition of “value” substitute—
““value”, in relation to an asset of an insurance company, means
25
the value of the asset as determined in accordance with
chapter 1.3, as read with chapter 3.2, of the Integrated
Prudential Sourcebook;”.
      (6)
The amendments made by this paragraph have effect in relation to periods
of account ending on or after 31st December 2004.
30
Amendment of Chapter 1 of Part 12 of ICTA etc
3
For section 431A of ICTA substitute—
“431A
  Amendment of Chapter etc
(1)
The Treasury may by order amend any insurance company taxation
provision where it is expedient to do so in consequence of the
35
exercise of any power under the Financial Services and Markets Act
2000, in so far as that Act relates to insurance companies.
(2)
Where any exercise of a power under that Act has effect for a period
ending on or before, or beginning before and ending after, the day on
which an order containing an amendment in consequence of that
40
exercise is made under subsection (1) above, the power conferred by
that subsection includes power to provide for the amendment to
have effect in relation to that period.

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Schedule 9 — Insurance companies etc
131

(3)
The Treasury may by order amend any of the following provisions—
(a)
sections 432ZA, 432A, 432B to 432G and 755A and Schedule
19AA;
(b)
sections 83A, 85, 88 and 89 of the Finance Act 1989;
(c)
section 210A of the Taxation of Chargeable Gains Act 1992.
5
(4)
An order under subsection (3) above may only be made so as to have
effect in relation to periods of account—
(a)
beginning on or after 1st January 2005, and
(b)
ending before 1st October 2006.
(5)
The Treasury may by order amend subsection (4)(b) above by
10
substituting for “1st October 2006” a date no later than 1st October
2007.
(6)
Any power conferred by this section to make an order includes
power to make—
(a)
different provision for different cases or different purposes,
15
and
(b)
incidental, supplemental, consequential or transitional
provision and savings.
(7)
In this section “insurance company taxation provision” means any of
the following—
20
(a)
a provision of this Chapter;
(b)
any other provision of the Tax Acts so far as relating to
insurance companies.”.
Apportionment of income and gains
4     (1)
Section 432A of ICTA is amended as follows.
25
      (2)
In subsection (9A) (meaning of “net value”) for “long-term liabilities”
substitute “liabilities”.
      (3)
The amendment made by this paragraph has effect in relation to periods of
account ending on or after 31st December 2004.
Section 432B apportionment: participating funds
30
5     (1)
Section 432E of ICTA is amended as follows.
      (2)
In subsection (2A) (increase in amount determined under subsection (2)
where amount is taken into account under subsection (2) of section 83 of FA
1989 by virtue of subsection (2B) of that section) in the opening words—
(a)
for “an amount is” substitute “an amount or amounts are”;
35
(b)
after “subsection (2B) of that section” insert “or by virtue of section
444ACA(2) of this Act”.
      (3)
In that subsection, for the definition of “RP” substitute—
“RP is the amount or the aggregate of the amounts taken into
account under subsection (2) of section 83 of the Finance Act
40
1989 by virtue of any of the following provisions—
(a)
subsection (2B) of that section;
(b)
section 444ACA(2) of this Act.”.