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Finance (No.2) Bill


Finance (No.2) Bill
Schedule 10 — Sale etc of lessor companies etc
Part 2 — Leasing business carried on by a company alone

271

 

      (2)  

The parent company is beneficially entitled to the appropriate proportion of

profits and assets if (and only if) it—

(a)   

is beneficially entitled to at least 75% of any profits available for

distribution to equity holders of the subsidiary company, and

(b)   

would be beneficially entitled to at least 75% of any assets of the

5

subsidiary company available for distribution to its equity holders

on a winding-up.

      (3)  

In this Schedule references to a qualifying 90% subsidiary are to be read in

the same way as references to a qualifying 75% subsidiary, but as if the

references to 75% were to 90%.

10

      (4)  

A company (“company A”) cannot be a qualifying 90% subsidiary of another

company for the purposes of this Schedule if company A is a qualifying 75%

subsidiary of a third company.

      (5)  

Schedule 18 to ICTA (equity holders and profits or assets etc) applies for the

purposes of any provision of this Part of this Schedule as it applies for the

15

purposes of any corresponding provision of Chapter 4 of Part 10 of that Act

(group relief).

      (6)  

But, in a case where the subsidiary company does not have ordinary share

capital, that Schedule applies for those purposes as if the members of that

company were equity holders of that company for the purposes of that

20

Schedule.

The amount of the income: the basic amount

16    (1)  

This paragraph determines the amount of the income under paragraph 3

when a qualifying change of ownership in relation to a company (“the

relevant company”) carrying on a business of leasing plant or machinery

25

occurs on any day (“the relevant day”).

      (2)  

The amount of the income is found by—

(a)   

applying the following formula to give the basic amount, and

(b)   

making any adjustment in accordance with any of paragraphs 19 to

21 to the basic amount.

30

      (3)  

The formula is—equation: plus[times[char[P],char[M]],minus[times[char[T],char[W],char[D],char[V]]]]

      (4)  

For this purpose—

“PM” has the meaning given by paragraph 17, and

“TWDV” has the meaning given by paragraph 18.

Meaning of “PM” in paragraph 16

35

17    (1)  

For the purposes of this paragraph references to plant or machinery, in the

case of any company, do not include any plant or machinery—

(a)   

on the provision of which the company has incurred expenditure

which is not, as a result of section 34A of CAA 2001 (expenditure for

long funding leasing), qualifying expenditure for the purposes of

40

Part 2 of that Act, or

 

 

Finance (No.2) Bill
Schedule 10 — Sale etc of lessor companies etc
Part 2 — Leasing business carried on by a company alone

272

 

(b)   

which is, as a result of section 67 of that Act (hire-purchase and

similar contracts), treated for the purposes of that Part as owned by

a person other than the company,

           

but, apart from that, include all other plant or machinery, whether or not

subject to a lease.

5

      (2)  

For the purposes of paragraph 16, “PM” means the amount found by adding

together—

(a)   

the amounts (if any) shown in the appropriate balance sheet of the

relevant company in respect of plant or machinery which it owns at

the start of the relevant day, and

10

(b)   

the amounts (if any) shown in the appropriate balance sheet of each

associated company in respect of plant or machinery which it

transfers to the relevant company on the relevant day,

           

and the reference here to an associated company is to a company which is an

associated company of the relevant company on the relevant day.

15

      (3)  

For this purpose the amounts shown in the appropriate balance sheet of any

company in respect of any plant or machinery are—

(a)   

the amounts shown in that balance sheet as the net book value (or

carrying amount) in respect of the plant or machinery, and

(b)   

the amounts shown in that balance sheet as the net investment in

20

respect of finance leases of the plant or machinery.

      (4)  

If—

(a)   

any of the plant or machinery is a fixture in any land, and

(b)   

the amount which falls (or would fall) to be shown in an appropriate

balance sheet as the net book value (or carrying amount) of the land

25

includes (or would include) an amount in respect of the fixture,

           

the amount of the net book value (or carrying amount) in respect of the

fixture is determined on a just and reasonable basis.

      (5)  

If—

(a)   

any of the plant or machinery is subject to a finance lease, and

30

(b)   

any land or asset which is not plant or machinery is subject to that

lease,

           

the amount of the net investment in respect of the finance lease of that plant

or machinery is determined on a just and reasonable basis.

      (6)  

In this paragraph any reference to any amount shown in the appropriate

35

balance sheet of a company is to the amount which, on the following

assumptions, falls (or would fall) to be shown in a balance sheet of the

company.

      (7)  

The assumptions are—

(a)   

that the balance sheet is drawn up as at the start of the relevant day

40

in accordance with generally accepted accounting practice, and

(b)   

that, if the company acquires any plant or machinery directly or

indirectly from a person who is connected with the company, the

plant or machinery had been acquired for an amount equal to its

market value as at the relevant day.

45

      (8)  

Sub-paragraph (7)(b) does not apply if the relevant day falls before 22nd

March 2006.

 

 

Finance (No.2) Bill
Schedule 10 — Sale etc of lessor companies etc
Part 2 — Leasing business carried on by a company alone

273

 

Meaning of “TWDV” in paragraph 16

18    (1)  

For the purposes of paragraph 16, “TWDV” means the amount found by

adding together—

(a)   

the total amount of unrelieved qualifying expenditure in single asset

pools for the new chargeable period that is carried forward in the

5

pools from the previous chargeable period under section 59 of CAA

2001,

(b)   

the total amount of unrelieved qualifying expenditure in class pools

for the new chargeable period that is carried forward in the pools

from the previous chargeable period under that section, and

10

(c)   

the amount of unrelieved qualifying expenditure in the main pool

for the new chargeable period that is carried forward in the pool

from the previous chargeable period under that section.

      (2)  

For the purposes of “TWDV”—

(a)   

“the new chargeable period” means the accounting period of the

15

relevant company that begins on the day following the relevant day

(see paragraph 3(4)), and

(b)   

expenditure incurred by the relevant company in acquiring plant or

machinery on the relevant day is to be left out of account unless it is

acquired from an associated company,

20

           

and the reference here to an associated company is to a company which is an

associated company of the relevant company on the relevant day.

Amount to be nil if basic amount negative

19         

If the basic amount given by the formula is a negative amount, the amount

is taken instead to be nil.

25

Adjustment to basic amount: qualifying 75% subsidiaries

20    (1)  

This paragraph applies if—

(a)   

the qualifying change of ownership occurs on any day as a result of

paragraph 11, and

(b)   

the change occurs by reference to a company (“company A”) ceasing

30

to be a qualifying 75% subsidiary of another company (“company B”)

on that day.

      (2)  

There is no adjustment to the basic amount unless, on that day, company

A—

(a)   

becomes owned by a consortium of which company B is a member,

35

or

(b)   

becomes a qualifying 90% subsidiary of a company owned by a

consortium of which company B is a member.

      (3)  

In that case, the amount of the income is limited to the appropriate

percentage of the basic amount.

40

      (4)  

The appropriate percentage is found by subtracting the relevant fraction at

the end of the day from 100%.

      (5)  

For this purpose “the relevant fraction” is whichever is the lowest of the

following percentages—

 

 

Finance (No.2) Bill
Schedule 10 — Sale etc of lessor companies etc
Part 3 — Leasing business carried on by a company in partnership

274

 

(a)   

the percentage of the ordinary share capital of company A that is

beneficially owned by company B,

(b)   

the percentage to which company B is beneficially entitled of any

profits available for distribution to equity holders of company A,

(c)   

the percentage to which company B would be beneficially entitled of

5

any assets of company A available for distribution to its equity

holders on a winding-up.

      (6)  

In any case where company A becomes a qualifying 90% subsidiary of a

company, sub-paragraph (5) is to be read as if for references to company A

there were substituted references to that company.

10

Adjustment to the basic amount: consortium relationships

21    (1)  

This paragraph applies if the qualifying change of ownership occurs on any

day as a result of paragraph 12.

      (2)  

In a case where that change arises only because the relevant fraction at the

end of the day is less than the relevant fraction at the start of the day, the

15

amount of the income is limited to the appropriate percentage of the basic

amount.

      (3)  

The appropriate percentage is found by subtracting the relevant fraction at

the end of the day from the relevant fraction at the start of the day.

      (4)  

In any other case, the amount of the income is limited to the relevant fraction

20

at the start of that day of the basic amount.

      (5)  

In this paragraph “the relevant fraction” has the same meaning as in

paragraph 12.

Migration

22    (1)  

This paragraph applies if—

25

(a)   

on any day (“the relevant day”) a company begins to be within the

charge to corporation tax in respect of a business of leasing plant or

machinery which it carries on otherwise than in partnership, and

(b)   

there is a qualifying change of ownership in relation to the company

which occurs on the relevant day.

30

      (2)  

For the purposes of this Part of this Schedule, any plant or machinery owned

by the company immediately before the relevant day is to be ignored in

calculating the amount of the income treated as received on that day.

Part 3

Leasing business carried on by a company in partnership

35

Change in company’s interest in business: income treated as received etc

23    (1)  

This paragraph applies for corporation tax purposes if—

(a)   

on any day (“the relevant day”) a company (“the partner company”)

carries on a business of leasing plant or machinery in partnership

with other persons (see paragraph 25),

40

(b)   

the partner company is within the charge to corporation tax in

respect of the business, and

 

 

Finance (No.2) Bill
Schedule 10 — Sale etc of lessor companies etc
Part 3 — Leasing business carried on by a company in partnership

275

 

(c)   

there is a qualifying change in the partner company’s interest in the

business on the relevant day (see paragraphs 27 and 28).

      (2)  

On the relevant day—

(a)   

the partner company is treated as receiving an amount of income,

and

5

(b)   

any other company which carries on the business on that day and

which is within the charge to corporation tax in respect of the

business is treated as incurring an expense.

      (3)  

The income—

(a)   

is treated as a receipt of the partner company’s notional business,

10

and

(b)   

is brought into account in calculating for corporation tax purposes

the profits of that business for the accounting period in which it is

treated as received.

      (4)  

The expense—

15

(a)   

is treated as an expense of the other company’s notional business,

and

(b)   

is allowed as a deduction in calculating for corporation tax purposes

the profits of that business for the accounting period in which it is

treated as incurred.

20

      (5)  

In this Part of this Schedule a company’s “notional business” means the

business—

(a)   

from which the company’s share in the profits or loss of the business

carried on by the partnership is treated under section 114(2) of ICTA

as deriving for the purposes of the charge to corporation tax, and

25

(b)   

which is treated under that provision as carried on alone by the

company for those purposes.

      (6)  

This paragraph is supplemented by paragraph 24.

Amount of income and expense

24    (1)  

The amount of the income is calculated in accordance with paragraphs 29 to

30

31.

      (2)  

The amount of the expense of the other company is calculated in accordance

with paragraph 32.

Meaning of “business of leasing plant or machinery”

25    (1)  

For purposes of this Part of this Schedule whether, on any day (“the relevant

35

day”), a company (“the partner company”) carries on a business of leasing

plant or machinery in partnership with other persons is determined in

accordance with paragraphs 6 to 8 (but modified as follows).

      (2)  

Any reference in those paragraphs to the relevant company is to be read as

a reference to the partnership.

40

      (3)  

Any reference in those paragraphs to an associated company of the relevant

company on the relevant day is to be read as a reference to each of the

following—

(a)   

the partner company,

 

 

Finance (No.2) Bill
Schedule 10 — Sale etc of lessor companies etc
Part 3 — Leasing business carried on by a company in partnership

276

 

(b)   

any company which is an associated company (see paragraph 26) of

the partner company on the relevant day,

(c)   

any other partner company in relation to whose interest in the

business there is a qualifying change on the relevant day,

(d)   

any other partner company in relation to which there is a qualifying

5

change of ownership on the relevant day, and

(e)   

any company which is an associated company of any other partner

company mentioned in paragraph (c) or (d) on the relevant day.

      (4)  

For this purpose “any other partner company” means a company—

(a)   

which carries on the business at the start of the relevant day, and

10

(b)   

which is within the charge to corporation tax in respect of the

business.

Meaning of “associated company”

26    (1)  

A company is an “associated company” of another company on any day if,

at the start of that day,—

15

(a)   

one of the two has control of the other, or

(b)   

both are under the control of the same person or persons,

           

and for this purpose “control” is to be read in accordance with section 416 of

ICTA.

      (2)  

Sub-paragraphs (3) and (4) apply if, at the start of any day, a company (“the

20

consortium company”)—

(a)   

is owned by a consortium, or

(b)   

is a qualifying 90% subsidiary of a company owned by a consortium.

      (3)  

If there is any qualifying change in the consortium company’s interest in a

business on that day, references to an associated company of the consortium

25

company on that day include—

(a)   

any member of the consortium at the start of that day, and

(b)   

any company which is an associated company of any such member

on that day.

      (4)  

If there is any qualifying change of ownership in relation to the consortium

30

company on that day but there is no qualifying change in its interest in a

business on the relevant day, references to an associated company of the

consortium company on that day include—

(a)   

any relevant member of the consortium on that day, and

(b)   

any company which is an associated company of any relevant

35

member of the consortium on that day.

      (5)  

For this purpose a member of the consortium is a “relevant” member on any

day if—

(a)   

it is a member of the consortium at the start of the day, and

(b)   

the qualifying change of ownership occurs on that day in a case

40

where the member of the consortium is regarded as “company E” for

the purposes of paragraph 12 (consortium relationships).

      (6)  

This paragraph applies for the purposes of this Part of this Schedule.

 

 

Finance (No.2) Bill
Schedule 10 — Sale etc of lessor companies etc
Part 3 — Leasing business carried on by a company in partnership

277

 

Meaning of “qualifying change” in company’s interest in a business

27    (1)  

For the purposes of this Schedule there is a qualifying change in a

company’s interest in a business on any day if its relevant percentage share

at the end of the day is less than its relevant percentage share at the start of

the day.

5

      (2)  

In this paragraph “relevant percentage share”, in relation to a company’s

interest in a business, means its percentage share in the profits or loss of the

business (determined in accordance with paragraph 28).

      (3)  

For the purposes of this paragraph any reference to a company’s share in the

profits or loss of the business includes a nil share (whether as a result of the

10

dissolution of the partnership or otherwise).

Determining the percentage share in the profits or loss of business

28    (1)  

For the purposes of this Part of this Schedule a company’s percentage share

in the profits or loss of a business at any time is determined on a just and

reasonable basis.

15

      (2)  

In making that determination, regard must be had, in particular, to—

(a)   

any matter that would be taken into account in determining under

section 114(2) of ICTA the company’s share at that time in the profits

or loss of the business, and

(b)   

any matter that would be taken into account in determining under

20

that provision the company’s share at that time in any capital

allowances and charges under CAA 2001.

The amount of the income: the basic amount

29    (1)  

This paragraph determines the amount of the income under paragraph 23

when a qualifying change in the interest of a company (“the partner

25

company”) in a business of leasing plant or machinery occurs on any day

(“the relevant day”).

      (2)  

The amount of the income is found by—

(a)   

applying the following formula to give the basic amount, and

(b)   

making the adjustment in accordance with paragraph 30 or 31 to the

30

basic amount.

      (3)  

The formula is—equation: plus[times[char[P],char[M]],minus[times[char[T],char[W],char[D],char[V]]]]

      (4)  

In this paragraph “PM” has the meaning given by paragraph 17, but —

(a)   

reading any reference in that paragraph to the relevant company as

a reference to the partnership, and

35

(b)   

reading any reference in that paragraph to an associated company of

the relevant company on the relevant day as a reference to a

qualifying company (see sub-paragraph (7)).

      (5)  

In this paragraph “TWDV” means the amount found by adding together—

(a)   

the total amount of unrelieved qualifying expenditure in single asset

40

pools for the new chargeable period that would be carried forward

 

 

 
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