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Finance (No.2) Bill


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

184

 

“money” includes money expressed in a currency other than

sterling,

“property” means property in any form,

“stock lending arrangement” and “securities” have the same

meanings as in section 263B of the 1992 Act,

5

“transfer” means a transfer otherwise than by way of sale.”.

      (4)  

The amendments made by this paragraph have effect in relation to any

arrangement made on or after 22nd March 2006.

Loan relationships: mandatory convertibles

4     (1)  

Section 81 of FA 1996 (meaning of “loan relationship” etc) is amended as

10

follows.

      (2)  

In subsection (2) (meaning of “money debt”)—

(a)   

omit the “or” immediately before paragraph (b) (transfer of right to

settlement under a money debt), and

(b)   

at the end of that paragraph insert “, or

15

(c)   

by the issue or transfer of any shares in any

company,”.

      (3)  

The amendments made by this paragraph have effect in relation to

relationships to which a company is a party on or after 22nd March 2006.

      (4)  

The following provisions of this paragraph apply for the purposes of TCGA

20

1992 if—

(a)   

a company is a party to a relationship on 22nd March 2006,

(b)   

the relationship becomes a loan relationship on that date for the

purposes of Chapter 2 of Part 4 of FA 1996 as a result of the

amendments made by this paragraph,

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(c)   

the relationship is a creditor relationship of the company, and

(d)   

immediately before that date the asset representing the relationship

was a chargeable asset in relation to the company.

      (5)  

The company is treated as if—

(a)   

it had made a disposal of the asset representing the relationship

30

immediately before 22nd March 2006, and

(b)   

the disposal had been for a consideration equal to the fair value of the

asset at that time (within the meaning given by section 103(1) of FA

1996).

      (6)  

Any chargeable gain or loss accruing to the company on the disposal is

35

treated as accruing to the company when it ceases to be a party to the

relationship.

      (7)  

For the purposes of this paragraph an asset is a chargeable asset in relation

to the company at any time if any gain accruing to it on the disposal of the

asset at that time would be a chargeable gain for the purposes of TCGA 1992.

40

Loan relationships: computation in accordance with generally accepted accounting practice

5     (1)  

Section 85A of FA 1996 (computation in accordance with generally accepted

accounting practice) is amended as follows.

 

 

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

185

 

      (2)  

In subsection (1) (amounts to be brought into account are those recognised

in determining company’s profit or loss) after “Subject to the provisions of

this Chapter” insert “(including, in particular, section 84(1))”.

Loan relationships: amounts not fully recognised for accounting purposes

6     (1)  

After section 85B of FA 1996 (amounts recognised in determining

5

company’s profit or loss) insert—

“85C    

Amounts not fully recognised for accounting purposes

(1)   

This section applies if—

(a)   

a company is, or is treated as being, a party to a loan

relationship in any period, and

10

(b)   

the credits and debits to be brought into account by the

company in respect of the relationship for the period for the

purposes of this Chapter are less than those that, on the

applicable assumptions, would be so brought into account.

   

In determining whether the condition in paragraph (b) is met, the

15

effect of this section is to be disregarded.

(2)   

The credits and debits to be brought into account by the company in

respect of the relationship for the period for the purposes of this

Chapter are to be those that, on the applicable assumptions, would

be so brought into account.

20

(3)   

For the purposes of this section, if the relationship is a creditor

relationship of the company, the applicable assumptions are the

assumptions that—

(a)   

the asset representing the relationship is the only asset of any

kind of the company for the period, and

25

(b)   

the company has no liabilities of any kind for the period.

(4)   

For the purposes of this section, if the relationship is a debtor

relationship of the company, the applicable assumptions are the

assumptions that—

(a)   

the liability representing the relationship is the only liability

30

of any kind of the company for the period, and

(b)   

the company has no assets of any kind for the period.

(5)   

In determining under this section the amount of the credits and

debits to be brought into account by the company in respect of the

relationship for the period, the applicable assumptions are not to

35

affect the operation of any other provision of this Chapter.

(6)   

This section does not apply to an amount of credits or debits for any

period in so far as it is not brought into account by the company for

the period for the purposes of this Chapter as a result of regulations

under—

40

(a)   

section 84A(3A) (exchange gains and losses), or

(b)   

section 85B(3) (amounts recognised in determining

company’s profit or loss).

(7)   

This section does not apply if the company has any qualifying rights

under any repo or stock lending arrangements in relation to the

45

relationship.

 

 

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

186

 

(8)   

For this purpose a company has qualifying rights under any repo or

stock lending arrangements if—

(a)   

the arrangements are an agreement falling within subsection

(1)(a) of section 730A of the Taxes Act 1988 (sale and

repurchase of securities) which are not excluded by

5

subsection (8) of that section and the company is the interim

holder under the agreement, or

(b)   

the arrangements are a stock lending arrangement (within

the meaning of section 263B of the Taxation of Chargeable

Gains Act 1992) and the company is the borrower under the

10

stock lending arrangement.

(9)   

For the purposes of this section a company is to be treated as

continuing to be a party to a loan relationship notwithstanding that

the rights under the relationship have been transferred to another

person—

15

(a)   

under a repo or stock lending arrangement, or

(b)   

under a transaction which is treated by section 26 of the

Taxation of Chargeable Gains Act 1992 as not involving any

disposal.

(10)   

In this section “liabilities” includes any share capital issued by the

20

company which falls to be treated for accounting purposes as a

liability.”.

      (2)  

The amendment made by this paragraph has effect in relation to periods of

account ending on or after 22nd March 2006.

      (3)  

But, in relation to a period of account beginning before 22nd March 2006,

25

amounts are to be brought into account for the purposes of Chapter 2 of Part

4 of FA 1996 as a result of that amendment only if the amounts relate to any

time on or after that date.

Shares treated as loan relationships: shares subject to outstanding third party obligations

7     (1)  

Section 91A of FA 1996 (shares subject to outstanding third party

30

obligations) is amended as follows.

      (2)  

In subsection (1) (conditions for section to apply), in the opening words, for

“a company if at any time in an accounting period” substitute “the times in

a company’s accounting period during which”.

      (3)  

In subsection (2) (how Chapter has effect for the accounting period) after “as

35

if” insert “during those times”.

      (4)  

In subsection (5) (cases where a share is subject to outstanding third party

obligations)—

(a)   

in paragraph (a) (share is subject to obligations of description in

subsection (6)) after “the share is subject to” insert “, or will or might

40

under any relevant arrangements be subject to,”, and

(b)   

in paragraph (b) (obligations of a person other than the investing

company) after “the investing company” insert “or are obligations of

the investing company which, under any relevant arrangements,

will or might be discharged directly or indirectly by any other

45

person”.

 

 

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

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      (5)  

After that subsection insert—

“(5A)   

For the purposes of subsection (5) above—

(a)   

“arrangements” includes any agreement or understanding

(whether or not legally enforceable),

(b)   

arrangements are “relevant” if they were entered into at any

5

time on or before the share was issued.”.

      (6)  

The amendments made by sub-paragraphs (2) and (3) have effect in relation

to accounting periods ending on or after 22nd March 2006.

      (7)  

The other amendments made by this paragraph have effect in relation to

shares held by a company on or after 22nd March 2006.

10

      (8)  

But, in relation to an accounting period beginning before 22nd March 2006,

amounts are to be brought into account for the purposes of Chapter 2 of Part

4 of FA 1996 as a result of those other amendments only if the amounts relate

to any time on or after that date.

Shares treated as loan relationships: application of rules to non-qualifying shares

15

8     (1)  

Section 91B of FA 1996 (non-qualifying shares) is amended as follows.

      (2)  

In subsection (1) (conditions for section to apply)—

(a)   

in the opening words, for “a company if at any time in an accounting

period” substitute “the times in a company’s accounting period

during which”, and

20

(b)   

in the words after paragraph (c), for “at no time in the accounting

period does section 91A above apply” substitute “, during those

times, section 91A above does not apply”.

      (3)  

In subsection (2) (how Chapter has effect for the accounting period) after “as

if” insert “during those times”.

25

      (4)  

The amendments made by this paragraph have effect in relation to

accounting periods ending on or after 22nd March 2006.

      (5)  

But, in relation to an accounting period beginning before 22nd March 2006,

amounts are to be brought into account for the purposes of Chapter 2 of Part

4 of FA 1996 as a result of those amendments only if the amounts relate to

30

any time on or after that date.

Shares treated as loan relationships: redeemable shares

9     (1)  

Section 91D of FA 1996 (condition 2 for section 91B(6)(b)) is amended as

follows.

      (2)  

For subsection (2) (cases in which share regarded as redeemable)

35

substitute—

“(2)   

For the purposes of this section, a share is to be regarded as

redeemable if (and only if)—

(a)   

it is redeemable as a result of its terms of issue (or any

collateral arrangements) requiring redemption, entitling the

40

holder to require redemption or entitling the issuer to

redeem, or

 

 

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

188

 

(b)   

there are relevant arrangements which will or might entitle

the investing company to qualifying redemption amounts.”.

      (3)  

After that subsection insert—

“(2A)   

For the purposes of subsection (2) above—

(a)   

“arrangements” includes any agreement or understanding

5

(whether or not legally enforceable and whether or not

forming part of the terms of issue of the share),

(b)   

arrangements are “relevant” if they were entered into at any

time on or before the investing company acquired the share,

and

10

(c)   

“qualifying redemption amounts” means amounts which,

when taken together, are the same, or are substantially the

same, as an amount that might be payable on the redemption

of the share.”.

      (4)  

In subsection (7) (shares mirroring a public issue: Case 1), in paragraph (b)

15

(associated companies issuing mirroring shares to company within 24 hours

of its issuing shares), for “24 hours” substitute “7 days”.

      (5)  

In subsection (8) (shares mirroring a public issue: Case 2), in paragraph (a)

(second-level mirroring shares issued within 24 hours of the public issue),

for “24 hours” substitute “7 days”.

20

      (6)  

The amendments made by sub-paragraphs (2) and (3) have effect in relation

to shares held by a company on or after 22nd March 2006.

      (7)  

But, in relation to an accounting period beginning before 22nd March 2006,

amounts are to be brought into account for the purposes of Chapter 2 of Part

4 of FA 1996 as a result of those amendments only if the amounts relate to

25

any time on or after that date.

      (8)  

The amendments made by sub-paragraphs (4) and (5) have effect in relation

to any case where the public issue (within the meaning of section 91D(7) and

(8) of FA 1996) is on or after 22nd March 2006.

Creditor relationships and benefit derived by connected persons

30

10    (1)  

After section 93B of FA 1996 (despite its repeal) insert—

“93C    

Creditor relationships and benefit derived by connected persons

(1)   

This section applies in the case of any loan relationship which is a

creditor relationship of a company (“company C”) if—

(a)   

the return to company C from the relationship is less than a

35

return (a “commercial return”) on an investment of money at

a commercial rate of interest,

(b)   

another company (“company P”) that is connected with

company C directly or indirectly derives any benefit as a

result of any arrangements made in consequence of, or

40

otherwise in connection with, the relationship, and

(c)   

that benefit is designed to represent some or all of the amount

by which the return to company C from the relationship is

less than a commercial return.

 

 

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

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(2)   

The credits to be brought into account by company C in respect of the

relationship for the purposes of this Chapter must be determined on

the basis of fair value accounting.

(3)   

The fair value of company C’s rights under the relationship must

include the fair value of the benefit which is derived by company P

5

as a result of the arrangements.

(4)   

Section 839 of the Taxes Act 1988 (connected persons) applies for the

purposes of this section.

(5)   

In this section—

“arrangements” includes any agreement or understanding

10

(whether or not legally enforceable);

“benefit” includes value in any form.

(6)   

In determining for the purposes of subsection (1)(a) the return to

company C from the relationship, any benefit which company C

derives directly or indirectly from the benefit derived by company P

15

as mentioned in subsection (1)(b) is to be disregarded.”.

      (2)  

The amendment made by this paragraph has effect in relation to loan

relationships to which a company is a party on or after 22nd March 2006.

      (3)  

But amounts are to be brought into account for the purposes of Chapter 2 of

Part 4 of FA 1996 as a result of that amendment only if the amounts relate to

20

any time on or after that date.

Loan relationships: money debts etc not arising from the lending of money

11    (1)  

Section 100 of FA 1996 (money debts etc not arising from the lending of

money) is amended as follows.

      (2)  

In subsection (1A) (conditions mentioned in subsection (1)(c)(iv)) for

25

paragraph (e) (property not an asset representing a loan relationship or

derivative contract) substitute—

“(e)   

if the money debt is some or all of the consideration payable

for a disposal of property, the property in question is not an

asset representing a loan relationship or a derivative contract

30

the disposal of which is a relevant disposal.”.

      (3)  

After that subsection insert—

“(1B)   

For the purposes of subsection (1A)(e) above “relevant disposal”

means—

(a)   

a disposal to which paragraph 12 of Schedule 9 applies or

35

would apply but for sub-paragraph (2A) of that paragraph,

(b)   

a disposal to which paragraph 28 of Schedule 26 to the

Finance Act 2002 applies or would apply but for paragraph

30 of that Schedule,

(c)   

a disposal not falling within paragraph (a) or (b) above as

40

respects which the whole of the consideration is brought into

account for the purposes of this Chapter or Schedule 26 to the

Finance Act 2002.”.

      (4)  

The amendments made by this paragraph have effect in relation to disposals

made on or after 22nd March 2006.

45

 

 

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Schedule 6 — Avoidance involving financial arrangements

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Loan relationships: meaning of “fair value” in Chapter 2 of Part 4 of FA 1996

12    (1)  

Section 103 of FA 1996 (interpretation of Chapter 2 of Part 4 of FA 1996) is

amended as follows.

      (2)  

In subsection (1), in the definition of “fair value”, in paragraphs (a) and (b),

omit “in respect of amounts which at that time are not yet due and payable”.

5

      (3)  

The amendment made by this paragraph has effect in relation to periods of

account ending on or after 22nd March 2006.

      (4)  

But, in relation to a period of account beginning before 22nd March 2006, the

amendment made by this paragraph has effect only in relation to—

(a)   

disposals or acquisitions (in whole or in part) of rights or liabilities

10

under a loan relationship, or

(b)   

anything treated for the purposes of Chapter 2 of Part 4 of FA 1996

as such a disposal or acquisition,

           

which were made (or treated as made) on or after that date.

Loan relationships: continuity of treatment of groups etc

15

13    (1)  

In Schedule 9 to FA 1996 (loan relationships: special computational

provisions) paragraph 12 (continuity of treatment: groups etc) is amended as

follows.

      (2)  

In sub-paragraph (2A) (paragraph 12 not to apply where transferor uses fair

value accounting)—

20

(a)   

in the opening words, for “uses” substitute “is regarded for the

purposes of this sub-paragraph as using”, and

(b)   

for paragraph (aa) (treatment of transferee in respect of the

transaction) substitute—

“(aa)   

for any accounting period in which it is a party to

25

the relationship, the transferee company shall be

treated for the purpose of determining the credits

and debits to be brought into account for the

purposes of this Chapter in respect of the

relationship as if it had acquired the asset or

30

liability representing the relationship for a

consideration equal to the amount mentioned in

paragraph (a) above (but on the assumption that

sub-paragraph (2C)(b) below is omitted).”.

      (3)  

After that sub-paragraph insert—

35

   “(2B)  

The transferor company shall be regarded for the purposes of sub-

paragraph (2A) above as using fair value accounting as respects

the loan relationship only if—

(a)   

it uses fair value accounting as respects the relationship

and the debits and credits to be brought into account for

40

the purposes of this Chapter as respects the relationship

are also determined on that basis, or

(b)   

it does not use fair value accounting as respects the

relationship but the debits and credits to be brought into

account for the purposes of this Chapter as respects the

45

relationship are determined on that basis.”.

 

 

 
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