Finance (No.2) Bill

House of Commons

Session 2005 - 06
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Other Bills before Parliament

Finance (No.2) Bill

Finance (No.2) Bill
Schedule 5 — Film tax relief: further provisions
Part 4 — Provisional entitlement to relief
177

Penalty
83X   (3)
The company is liable to a penalty where it—
(a)
fraudulently or negligently makes a claim for a film tax
credit that is incorrect, or
(b)
discovers that a claim for a film tax credit made by it
5
(neither fraudulently nor negligently) is incorrect and does
not remedy the error without unreasonable delay.
      (4)
The penalty is an amount not exceeding the excess film tax credit
claimed, that is, the difference between—
(a)
the amount (if any) of the film tax credit to which the
10
company is entitled for the accounting period to which the
claim relates, and
(b)
the amount of the film tax credit claimed by the company
for that period.”.
Part 4
15
Provisional entitlement to relief
Introduction
30    (1)
In this Part of this Schedule—
“the company” means the film production company;
“the final accounting period” means the accounting period of the
20
company in which—
(a)
the film is completed, or
(b)
where the company does not complete the film, it abandons
film-making activities in relation to it;
“interim accounting period” means any earlier accounting period of the
25
company during which film-making activities are carried on in
relation to the film;
“interim certificate” and “final certificate” refer to certificates under
Schedule 1 to the Films Act 1985 (c. 21) (certification of films as
British films for purposes of film tax relief);
30
“relief” means—
(a)
film tax relief, or
(b)
relief under section 45 (transfer of terminal losses from one
qualifying film to another).
      (2)
The company tax return of the company for the final accounting period must
35
state that the film has been completed or, as the case may be, that the
company has abandoned film-making activities in relation to it.
Certification as a British film
31    (1)
The company is not entitled to relief for an interim accounting period unless
its company tax return for the period is accompanied by an interim
40
certificate.
      (2)
If an interim certificate ceases to be in force (otherwise than on being
superseded by a final certificate) or is revoked, the company—

Finance (No.2) Bill
Schedule 5 — Film tax relief: further provisions
Part 4 — Provisional entitlement to relief
178

(a)
is not entitled to relief for any period for which its entitlement
depended on the certificate, and
(b)
must amend accordingly its company tax return for any such period.
      (3)
If the film is completed by the company—
(a)
its company tax return for the final accounting period must be
5
accompanied by a final certificate;
(b)
if that requirement is met, the final certificate has effect for the final
accounting period and for any interim accounting period;
(c)
if that requirement is not met, the company—
(i)
is not entitled to relief for any period, and
10
(ii)
must amend accordingly its company tax return for any
period for which relief was claimed.
      (4)
If the company abandons film-making activities in relation to the film—
(a)
its company tax return for the final accounting period may be
accompanied by an interim certificate; and
15
(b)
the abandonment of film-making activities does not affect any
entitlement to relief in that or any previous accounting period.
      (5)
If a final certificate is revoked, the company—
(a)
is not entitled to relief for any period, and
(b)
must amend accordingly its company tax return for any period for
20
which relief was claimed.
The UK expenditure condition
32    (1)
The company is not entitled to relief for an interim accounting period
unless—
(a)
its company tax return for the period states the amount of planned
25
core expenditure on the film that is UK expenditure, and
(b)
that amount is such as to indicate that the condition in section 41 (the
UK expenditure condition) will be met on completion of the film.

If those requirements are met, the company is provisionally treated in
relation to that period as if that condition was met.
30
      (2)
If such a statement is made but it subsequently appears that condition will
not be met on completion of the film, the company—
(a)
is not entitled to relief for any period for which its entitlement
depended on such a statement, and
(b)
must amend accordingly its company tax return for any such period.
35
      (3)
When the film is completed or, as the case may be, the company abandons
film-making activities in relation to it—
(a)
the company tax return for the final accounting period must—
(i)
state that the film has been completed or, as the case may be,
the company has abandoned film-making activities in
40
relation to it, and
(ii)
be accompanied by a final statement of the amount of core
expenditure on the film that is UK expenditure; and
(b)
if the return shows that the condition in section 41 is not met, the
company—
45
(i)
is not entitled to relief for any period, and

Finance (No.2) Bill
Schedule 5 — Film tax relief: further provisions
Part 4 — Provisional entitlement to relief
179

(ii)
must amend accordingly its company tax return for any
period for which relief was claimed.
Whether film a limited-budget film
33    (1)
The company is not entitled to film tax relief for an interim accounting
period on the basis that the film is a limited-budget film unless—
5
(a)
its company tax return for the period states the amount of planned
core expenditure on the film, and
(b)
that amount is such as to indicate that the condition in section 34(2)
(definition of “limited-budget film”) will be met on completion of the
film.
10

In that case, the film is provisionally treated in relation to that period as if
that condition was met.
      (2)
If it subsequently appears that the condition will not be met on completion
of the film, the company—
(a)
is not entitled to film tax relief for any period on the basis that the
15
film is a limited-budget film, and
(b)
must amend accordingly its company tax return for any such period
for which relief has been claimed on that basis.
      (3)
When the film is completed or, as the case may be, the company abandons
film-making activities in relation to it—
20
(a)
its company tax return for the final accounting period must—
(i)
state that the film has been completed or, as the case may be,
the company has abandoned film-making activities in
relation to it, and
(ii)
be accompanied by a final statement of the core expenditure
25
on the film; and
(b)
if the return shows that the film is not a limited-budget film, or (as
the case may be) that having regard to the proportion of work on the
film that was completed, it would not have been a limited-budget
film if it had been completed, the company—
30
(i)
is not entitled to film tax relief for any period on the basis that
the film is a limited-budget film, and
(ii)
must amend accordingly its company tax return for any
period for which such relief was claimed on that basis.
Time limit for amendments and assessments
35
34
Any amendment or assessment necessary to give effect to the provisions of
this Part of this Schedule may be made notwithstanding any limitation on
the time within which an amendment or assessment may normally be made.

Finance (No.2) Bill
Schedule 6 — Avoidance involving financial arrangements
180

Schedule 6
Section 76

Avoidance involving financial arrangements
Dividend stripping: subsequent sales etc of rights to receive dividends etc
1     (1)
Section 730 of ICTA (transfers of rights to receive distributions in respect of
shares) is amended as follows.
5
      (2)
Omit subsection (3) (proceeds of subsequent sales etc of rights to receive
distributions not to be regarded as income of the seller etc).
      (3)
The amendment made by this paragraph has effect in relation to sales or
other realisations on or after 20th January 2006.
Deemed interest: cash collateral under stock lending arrangements
10
2     (1)
After section 736B of ICTA (deemed manufactured payments in the case of
stock lending arrangements) insert—
“736C
  Deemed interest: cash collateral under stock lending arrangements
(1)
This section applies where—
(a)
the borrower under a stock lending arrangement is treated
15
under section 736B(2) as paying under that arrangement an
amount representative of interest on any securities (“the
relevant securities”),
(b)
an amount of money (“cash collateral”) is payable to or for the
benefit of the lender for the purpose of securing the discharge
20
of the requirement to transfer the relevant securities back to
the lender,
(c)
the stock lending arrangement is designed to produce a
return to the borrower which equates, in substance, to the
return on an investment of money at interest, and
25
(d)
the main purpose, or one of the main purposes, of the stock
lending arrangement is the obtaining of a tax advantage.
(2)
Where this section applies—
(a)
the Tax Acts are to apply as if the borrower receives an
amount of interest payable in respect of the cash collateral,
30
and
(b)
the amount of the interest is calculated in accordance with the
following provisions of this section (see, in particular,
subsections (3) to (7)).
(3)
The interest is treated for the purposes of the Tax Acts as if it were
35
received on the date (“the return date”) on which the borrower
transfers the relevant securities back to the lender.
(4)
The interest is treated for the purposes of the Tax Acts as if it were
payable in respect of the period (“the interest period”)—
(a)
beginning with the date on which the lender transfers the
40
relevant securities to the borrower, and
(b)
ending with the return date.

Finance (No.2) Bill
Schedule 6 — Avoidance involving financial arrangements
181

(5)
The rate of interest payable in respect of the cash collateral is a rate
that is reasonably comparable to the rate that the borrower could
obtain by placing the cash collateral on deposit for the interest
period.
(6)
For the purposes of this section, the amount of the cash collateral on
5
which the interest is payable is taken to be—
(a)
in any case where the amount of the cash collateral varies at
any time on or before the return date, the highest amount of
the cash collateral at any time on or before the return date,
and
10
(b)
in any other case, the amount of the cash collateral as at the
return date.
(7)
The amount of the interest which the borrower is treated as receiving
in respect of the cash collateral for the interest period is reduced (but
not below nil) by any interest which the borrower actually receives
15
in respect of that collateral for that period.
(8)
If the borrower is a person within the charge to income tax, the
interest which the borrower is treated as receiving is charged to
income tax under Chapter 2 of Part 4 of ITTOIA 2005 (interest).
(9)
If the borrower is a company within the charge to corporation tax—
20
(a)
the interest which the borrower is treated as receiving is
treated for the purposes of Chapter 2 of Part 4 of the Finance
Act 1996 (loan relationships) as payable to it on a money debt,
(b)
that money debt is treated for those purposes as a
relationship to which section 100 of the Finance Act 1996
25
applies (money debts etc not arising from the lending of
money), and
(c)
the credits to be brought into account for those purposes in
respect of the interest must be determined using an
amortised cost basis of accounting.
30
(10)
The fact that the borrower is treated as receiving an amount of
interest is not to be taken as implying that the interest is payable by
the lender or any other person.
(11)
For the purposes of this section—
“money” includes money expressed in a currency other than
35
sterling,
“stock lending arrangement” and “securities” have the same
meanings as in section 263B of the 1992 Act,
“tax advantage” has the meaning given by section 709(1).
(12)
For the purposes of this section—
40
(a)
any reference to the transfer of securities back has the same
meaning as in section 263B of the 1992 Act (see, in particular,
sections 263B(5) and 263C(1) of that Act), but
(b)
if it becomes apparent that the borrower will not comply with
the requirement to transfer any securities back, the borrower
45
is treated as if he transfers them back on the date on which it
becomes so apparent.
(13)
For the purposes of this section it does not matter—

Finance (No.2) Bill
Schedule 6 — Avoidance involving financial arrangements
182

(a)
whether the cash collateral is payable by the borrower or by
any other person,
(b)
whether the cash collateral is payable under the stock lending
arrangement or under any other arrangement,
(c)
whether collateral in another form is also provided in
5
connection with the stock lending arrangement.”.
      (2)
Section 736C of ICTA has effect in relation to any stock lending arrangement
made on or after 5th December 2005.
      (3)
In relation to any stock lending arrangement made on or after that date but
before 22nd March 2006, that section has effect as if subsection (6) were
10
omitted.
      (4)
If—
(a)
a stock lending arrangement was made before 5th December 2005 in
respect of any securities (“the original securities”), and
(b)
on or after that date the lender under the stock lending arrangement
15
transfers securities (“the substituted securities”) in substitution for
some or all of the original securities,

section 736C of ICTA has effect as if that arrangement were made on the date
of the substitution (and the substituted securities were the relevant
securities).
20
Quasi-stock lending arrangements and quasi-cash collateral
3     (1)
In section 736B of ICTA (deemed manufactured payments in the case of
stock lending arrangements) at the end insert—
“(4)
See section 736D for provision treating certain arrangements as stock
lending arrangements for the purposes of this section.”.
25
      (2)
In section 736C of ICTA (deemed interest: cash collateral under stock
lending arrangements), as inserted by paragraph 2 above, at the end insert—
“(14)
See section 736D—
(a)
for provision treating certain arrangements as stock lending
arrangements for the purposes of this section, and
30
(b)
for provision treating certain amounts as cash collateral for
those purposes.”.
      (3)
After that section insert—
“736D
  Quasi-stock lending arrangements and quasi-cash collateral
(1)
In this section “quasi-stock lending arrangement” means so much of
35
any arrangements between two or more persons as are not stock
lending arrangements, but are arrangements under which—
(a)
a person (“the lender”) transfers securities to another person
(“the borrower”), and
(b)
a requirement is imposed on a person to transfer any or all of
40
the securities, or any other property, back to the lender or any
other person,

and it does not matter whether the person on whom that
requirement is imposed is the borrower or any other person.

Finance (No.2) Bill
Schedule 6 — Avoidance involving financial arrangements
183

(2)
In this section “quasi-cash collateral”, in relation to any stock lending
arrangement or quasi-stock lending arrangement, means—
(a)
any money which is payable for a relevant purpose, plus
(b)
any other property which is transferable for a relevant
purpose.
5
(3)
Money or other property is payable or transferable for a relevant
purpose if it is payable or transferable to or for the benefit of—
(a)
the lender under the stock lending arrangement or quasi-
stock lending arrangement, or
(b)
a person connected with that lender,
10

for the purpose of securing the discharge of the requirement to
transfer any or all of the securities, or any other property, back to that
lender or any other person.
(4)
For the purposes of sections 736B and 736C, a quasi-stock lending
arrangement is treated as if it were a stock lending arrangement.
15
(5)
For the purposes of section 736C, in relation to any stock lending
arrangement or quasi-stock lending arrangement,—
(a)
quasi-cash collateral is treated as if it were cash collateral, and
(b)
the amount of the quasi-cash collateral in relation to the stock
lending arrangement or quasi-stock lending arrangement is
20
taken to be the amount of the cash collateral.
(6)
If any property other than money is transferable for a relevant
purpose, the amount of the quasi-cash collateral so far as relating to
that property is determined by reference to its market value.
(7)
In any case where—
25
(a)
section 736C applies in relation to a quasi-stock lending
arrangement, and
(b)
the person for whom the tax advantage was designed to be
obtained is a person (“the other person”) other than the
borrower under that arrangement,
30

that section has effect as if the other person were the person who
receives the amount of interest mentioned in that section.
(8)
In any case where section 736C applies in relation to a quasi-stock
lending arrangement—
(a)
any reference in that section to cash collateral being payable
35
to or for the benefit of the lender includes its being payable to
or for the benefit of a person connected with the lender,
(b)
the reference in subsection (1)(c) of that section to a return to
the borrower includes a return to any other person, and
(c)
any reference in that section to the transfer back of the
40
relevant securities by the borrower to the lender includes the
transfer back of any or all of the securities, or any other
property, by any person to the lender or any other person.
(9)
Section 839 (connected persons) applies for the purposes of this
section.
45
(10)
In this section—