|
| |
|
| |
| |
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 |
| |
| |
(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 |
| |
| |
(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 |
| |
(b) | the amount of the interest is calculated in accordance with the |
| |
following provisions of this section (see, in particular, |
| |
| |
(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. |
| |
|
| |
|
| |
|
(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 |
| |
| |
(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, |
| |
| 10 |
(b) | in any other case, the amount of the cash collateral as at the |
| |
| |
(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 |
| |
| |
(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 |
| |
“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 |
| |
| |
(13) | For the purposes of this section it does not matter— |
| |
|
| |
|
| |
|
(a) | whether the cash collateral is payable by the borrower or by |
| |
| |
(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 |
| |
| |
(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 |
| |
| 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— |
| |
| |
(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 |
| |
| |
(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 |
| |
| |
(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 |
| |
| |
| and it does not matter whether the person on whom that |
| |
requirement is imposed is the borrower or any other person. |
| |
|
| |
|
| |
|
(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 |
| |
| 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. |
| |
| 25 |
(a) | section 736C applies in relation to a quasi-stock lending |
| |
| |
(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 |
| |
| |
(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 |
| |
| 45 |
| |
|
| |
|
| |
|
“money” includes money expressed in a currency other than |
| |
| |
“property” means property in any form, |
| |
“stock lending arrangement” and “securities” have the same |
| |
meaning 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 |
| |
(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 |
| |
| |
(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 |
| |
(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, |
| 25 |
(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 |
| |
| |
(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 |
| |
| |
(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. |
| |
|
| |
|
| |
|
(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 creditor |
| |
relationship in any period, |
| 10 |
(b) | an amount is not fully recognised for the period in respect of |
| |
the creditor relationship, |
| |
(c) | the company is, or is treated as being, a party to a debtor |
| |
relationship in the period or has at any time issued share |
| |
capital which falls to be treated for accounting purposes as a |
| 15 |
liability (a “relevant accounting liability”) for the period, |
| |
(d) | an amount is not fully recognised for the period in respect of |
| |
the debtor relationship or relevant accounting liability, and |
| |
(e) | the amounts are not fully recognised as mentioned in |
| |
paragraphs (b) and (d) as a result of the application of |
| 20 |
generally accepted accounting practice in relation to the |
| |
creditor relationship and the debtor relationship or relevant |
| |
| |
(2) | For the purposes of subsection (1) an amount is not fully recognised |
| |
for the period in respect of any loan relationship or relevant |
| 25 |
accounting liability of the company if— |
| |
(a) | no amount in respect of the relationship or liability is |
| |
recognised in determining its profit or loss for the period, or |
| |
(b) | an amount in respect of only part of the relationship or |
| |
liability is recognised in determining its profit or loss for the |
| 30 |
| |
(3) | In determining the credits and debits to be brought into account by |
| |
the company in respect of the creditor relationship for the period for |
| |
the purposes of this Chapter, the applicable assumption (see |
| |
subsection (6)) must be made. |
| 35 |
(4) | In any case where the condition in subsection (1)(c) is met by |
| |
reference to a debtor relationship of the company, in determining the |
| |
credits and debits to be brought into account by the company in |
| |
respect of that relationship for the period for the purposes of this |
| |
Chapter, the applicable assumption must be made. |
| 40 |
(5) | But the amount of any debits to be brought into account by the |
| |
company for any period for the purposes of this Chapter as a result |
| |
of subsection (4) must not exceed the amount of any credits to be |
| |
brought into account by the company for the period as a result of |
| |
| 45 |
(6) | For the purposes of this section, in relation to any loan relationship, |
| |
the applicable assumption is the assumption that an amount in |
| |
|
| |
|
| |
|
respect of the whole of the relationship is recognised in determining |
| |
the company’s profit or loss for the period. |
| |
| |
(a) | apart from this section any credits or debits are brought into |
| |
account by the company in respect of any loan relationship |
| 5 |
for the period for the purposes of this Chapter, and |
| |
(b) | the relationship is one to which this section applies, |
| |
| the credits and debits to be so brought into account as a result of this |
| |
section must be determined on the same basis of accounting on |
| |
which the credits or debits mentioned in paragraph (a) were |
| 10 |
| |
(8) | In any other case, the credits and debits to be so brought into account |
| |
as a result of this section must be determined on the amortised cost |
| |
| |
(2) | The amendment made by this paragraph has effect in relation to periods of |
| 15 |
account ending on or after 22nd March 2006. |
| |
(3) | But, in relation to a period of account 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 that amendment only if the amounts relate to any |
| |
time on or after that date. |
| 20 |
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 |
| |
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 |
| 25 |
a company’s accounting period during which”. |
| |
(3) | In subsection (2) (how Chapter has effect for the accounting period) after “as |
| |
if” insert “during those times”. |
| |
(4) | In subsection (5) (cases where a share is subject to outstanding third party |
| |
| 30 |
(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 |
| |
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 |
| 35 |
the investing company which, under any relevant arrangements, |
| |
will or might be discharged directly or indirectly by any other |
| |
| |
(5) | After that subsection insert— |
| |
“(5A) | For the purposes of subsection (5) above— |
| 40 |
(a) | “arrangements” includes any agreement or understanding |
| |
(whether or not legally enforceable), |
| |
(b) | arrangements are “relevant” if they were entered into at any |
| |
time on or before the share was issued.”. |
| |
|
| |
|