Finance Bill

House of Commons

Session 2006 - 07
Internet Publications
Other Bills before Parliament

Finance Bill

Finance Bill
Schedule 12 — Friendly societies: transfers to insurance companies etc
175

(a)
relates to contracts made before that time; and
(b)
immediately before that time was tax exempt life or
endowment business,

that business shall continue to be exempt from corporation tax
(whether on income or chargeable gains) on profits arising from it.
5
(13)
But if any contracts constituting or forming part of the business of a
company covered by subsection (11) or (12) above are varied during
an accounting period of the company so as to increase the premiums
payable under them, the business relating to those contracts is not
exempt from corporation tax for that or any subsequent accounting
10
period.
(14)
For the purposes of the Corporation Tax Acts any part of a
company’s business which is exempt from corporation tax by virtue
of subsection (11) or (12) above shall be treated as a separate business
from any other business carried on by the company.”
15
      (5)
Insert at the end—
“(15)
The Treasury may by regulations provide that, where any part of the
business of a company is exempt from corporation tax by virtue of
subsection (11) or (12) above, the Corporation Tax Acts have effect
subject to such modifications (or exceptions) as the Treasury
20
consider appropriate.
(16)
Regulations under subsection (15) above—
(a)
may make different provision for different cases,
(b)
may include any incidental, supplementary, consequential or
transitional provisions which the Treasury consider
25
appropriate, and
(c)
may include retrospective provision.”
2     (1)
Section 464 of ICTA (maximum benefits payable to members) is amended as
follows.
      (2)
For the first sentence of subsection (1) substitute—
30
“(1)
Subject to subsections (2) and (3) below, a person is not entitled to
have at any time outstanding contracts with any one or more friendly
societies, registered branches or insurance companies which (taking
them all together) are for the assurance of—
(a)
more than £750 by way of gross sum under business which is
35
afforded exemption from corporation tax by section 460, or
(b)
more than £156 by way of annuity under such business.”
      (3)
In subsection (3), for the words preceding the paragraphs substitute “With
respect to contracts for the assurance of gross sums under business which is
afforded exemption from corporation tax by section 460, a person is not
40
entitled to have outstanding at any time with any one or more friendly
societies, registered branches or insurance companies—”.
      (4)
In subsection (4A), for “tax exempt life or endowment business” substitute
“business which is afforded exemption from corporation tax by section 460
if they are”.
45

Finance Bill
Schedule 12 — Friendly societies: transfers to insurance companies etc
176

      (5)
In subsection (6), for “member has outstanding with one or more society or
branch” substitute “person has outstanding with one or more societies,
branches or companies”.
      (6)
In subsection (7)—
(a)
for “or registered branch” substitute “, registered branch or
5
insurance company”,
(b)
for “member” (in both places) substitute “person”, and
(c)
for “or registered branches (taking together all such societies or
branches throughout the United Kingdom)” substitute “, registered
branches or insurance companies (taken together)”.
10
3
In section 466(2) of ICTA, in the definition of “tax exempt life or endowment
business”, for “(11)” substitute “(10A)”.
Other exempt business
4     (1)
Section 461 of ICTA (exemption of registered friendly societies from tax in
respect of business which is not life or endowment business) is amended as
15
follows.
      (2)
After subsection (4) insert—
“(4A)
Where—
(a)
at any time an insurance company acquires by way of
transfer of engagements from a registered friendly society
20
any business other than life or endowment business, and
(b)
immediately before that time the society was exempt from
corporation tax on profits arising from that business,

the insurance company shall be exempt from corporation tax on its
profits arising from any part of that business which relates to
25
contracts made before that time.
(4B)
But if during an accounting period of the insurance company there is
an increase in the scale of benefits which it undertakes to provide in
the course of carrying on any such part of that business, the company
shall not be exempt from corporation tax by virtue of subsection (4A)
30
above for that or any subsequent accounting period.”
      (3)
In subsection (5), after “(4)” insert “or (4A)”.
      (4)
Insert at the end—
“(12)
The Treasury may by regulations provide that, where any part of the
business of a company is exempt from corporation tax by virtue of
35
subsection (4) or (4A) above, the Corporation Tax Acts have effect
subject to such modifications (or exceptions) as the Treasury
consider appropriate.
(13)
Regulations under subsection (12) above—
(a)
may make different provision for different cases,
40
(b)
may include any incidental, supplementary, consequential or
transitional provisions which the Treasury consider
appropriate, and
(c)
may include retrospective provision.”

Finance Bill
Schedule 12 — Friendly societies: transfers to insurance companies etc
177

5     (1)
Section 461B of ICTA (exemption of incorporated friendly societies from tax
in respect of business which is not life or endowment business) is amended
as follows.
      (2)
For subsection (6) substitute—
“(6)
But if during an accounting period of the company there is an
5
increase in the scale of benefits which it undertakes to provide in the
course of carrying on any such part of its business, the company shall
not be exempt from corporation tax by virtue of subsection (5) above
for that or any subsequent accounting period.
(6A)
Where—
10
(a)
at any time an insurance company acquires by way of
transfer of engagements from a qualifying society any
business other than life or endowment business, and
(b)
immediately before that time the society was exempt from
corporation tax on profits arising from that business,
15

the insurance company shall be exempt from corporation tax on its
profits arising from any part of that business which relates to
contracts made before that time.
(6B)
But if during an accounting period of the insurance company there is
an increase in the scale of benefits which it undertakes to provide in
20
the course of carrying on any such part of that business, the company
shall not be exempt from corporation tax by virtue of subsection (6A)
above for that or any subsequent accounting period.”
      (3)
In subsection (7), after “(5)” insert “or (6A)”.
      (4)
Insert at the end—
25
“(8)
The Treasury may by regulations provide that, where any part of the
business of a company is exempt from corporation tax by virtue of
subsection (5) or (6A) above, the Corporation Tax Acts have effect
subject to such modifications (or exceptions) as the Treasury
consider appropriate.
30
(9)
Regulations under subsection (8) above—
(a)
may make different provision for different cases,
(b)
may include any incidental, supplementary, consequential or
transitional provisions which the Treasury consider
appropriate, and
35
(c)
may include retrospective provision.”
Commencement
6     (1)
The amendment made by sub-paragraph (2) of paragraph 1, so far as
relating to section 460(11) of ICTA, and the amendments made by sub-
paragraph (3) of that paragraph and paragraph 3 are deemed always to have
40
had effect.
      (2)
The amendments made by paragraph 2 have effect in relation to contracts
made after the passing of this Act.
      (3)
The amendment made by sub-paragraph (2) of paragraph 1, so far as
relating to section 460(12) of ICTA, and the amendments made by sub-
45

Finance Bill
Schedule 13 — Sale and repurchase of securities
178

paragraph (4) of that paragraph and paragraphs 4(2) and (3) and 5(2) and (3)
have effect in relation to transfers of engagements and conversions taking
place on or after the day on which this Act is passed.
Schedule 13
Section 46

Sale and repurchase of securities
5
Purpose of Schedule
1     (1)
The purpose of this Schedule is to secure that in the case of an
arrangement—
(a)
which involves the sale of securities and the subsequent purchase of
securities, and
10
(b)
which equates, in substance, to a transaction for the lending of
money at interest from or to a company (with the securities which
were sold as collateral for the loan),

the charge to corporation tax in that case reflects the fact that the
arrangement equates, in substance, to such a transaction.
15
      (2)
But this is not to be read as preventing the rules in this Schedule about
corporation tax in respect of chargeable gains from having no effect in
relation to debtor quasi-repos and creditor quasi-repos.
Meaning of debtor repo
2     (1)
For the purposes of this Schedule a company (“the borrower”) has a debtor
20
repo if conditions A to E are met.
      (2)
Condition A is that under an arrangement the borrower receives from
another person (“the lender”) any money or other asset (“the advance”).
      (3)
Condition B is that, in accordance with generally accepted accounting
practice, the accounts of the borrower for the period in which the advance is
25
received record a financial liability in respect of the advance.
      (4)
Condition C is that under the arrangement the borrower sells any securities
at any time to the lender.
      (5)
Condition D is that the arrangement makes provision conferring a right or
imposing an obligation on the borrower to buy those or similar securities at
30
any subsequent time.
      (6)
Condition E is that, in accordance with generally accepted accounting
practice, the subsequent buying of those or similar securities would
extinguish the financial liability in respect of the advance recorded in the
accounts of the borrower.
35
      (7)
For the purposes of conditions A to E references to the borrower include a
partnership of which the borrower is a member.
Meaning of debtor quasi-repo
3     (1)
For the purposes of this Schedule a company (“the borrower”) has a debtor
quasi-repo in any case if—
40

Finance Bill
Schedule 13 — Sale and repurchase of securities
179

(a)
the borrower does not have a debtor repo in that case, and
(b)
conditions A to E are met in that case.
      (2)
Condition A is that under an arrangement the borrower receives any money
or other asset (“the advance”).
      (3)
Condition B is that, in accordance with generally accepted accounting
5
practice, the accounts of the borrower for the period in which the advance is
received record a financial liability in respect of the advance.
      (4)
Condition C is that under that or any other arrangement the borrower or any
other person sells any securities at any time.
      (5)
Condition D is that the arrangement or other arrangement—
10
(a)
makes provision conferring a right or imposing an obligation on the
borrower to buy the securities or any other securities at any
subsequent time, or
(b)
makes provision conferring such a right or imposing such an
obligation on any other person and makes other relevant provision.
15
      (6)
For this purpose any arrangement makes “other relevant provision” if it
makes provision—
(a)
for the receipt of any money or other asset from the borrower under
that arrangement for the purpose of enabling the other person to
make that subsequent purchase, or
20
(b)
for the discharge of any liability to the borrower under that
arrangement for that purpose (whether by way of set off or
otherwise).
      (7)
Condition E is that, in accordance with generally accepted accounting
practice—
25
(a)
the subsequent buying of the securities or the other securities by the
borrower, or
(b)
the receipt of the asset from the borrower, or the discharge of the
liability to the borrower, under the arrangement or other
arrangement,
30

would extinguish the financial liability in respect of the advance recorded in
the accounts of the borrower.
      (8)
For the purposes of conditions A to E references to the borrower include a
partnership of which the borrower is a member.
Ignoring effect on borrower of sale of securities: debtor repos, debtor quasi-repos and other
35
arrangements
4     (1)
This paragraph applies if a company (“the borrower”)—
(a)
has a debtor repo or a debtor quasi-repo, or
(b)
has a liability which is discharged under a relevant arrangement.
      (2)
A relevant arrangement is one in relation to which conditions C and D in
40
paragraph 3 are met and the main purpose, or one of the main purposes, of
which is the obtaining of a tax advantage.
      (3)
For the purposes of the charge to corporation tax in respect of income of the
borrower arising while the arrangement is in force, the Corporation Tax Acts
have effect as if—
45

Finance Bill
Schedule 13 — Sale and repurchase of securities
180

(a)
the borrower held the securities that are initially sold for any period
for which the arrangement is in force, and
(b)
the borrower did not receive in that period amounts representative
of income payable in respect of those securities.
      (4)
But—
5
(a)
no amount is to be charged to corporation tax as a result of sub-
paragraph (3)(a) unless it is, in accordance with generally accepted
accounting practice, recognised in determining the borrower’s profit
or loss for that period, and
(b)
there is the following exception to sub-paragraph (3) if the securities
10
that are initially sold are overseas securities.
      (5)
In the case of any overseas dividend payable in respect of those securities,
the entitlement of the borrower to double taxation relief in respect of that
dividend is determined as if—
(a)
sub-paragraph (3) were omitted,
15
(b)
the borrower received a payment of an amount which is
representative of that dividend,
(c)
the payment were made under a requirement of the arrangement,
and
(d)
the payment were made on the date on which that dividend is
20
payable.
      (6)
For the purposes of this paragraph “double taxation relief” means any relief
given under or as a result of Part 18 of ICTA.
Relief for borrower for finance charges in respect of the advance: debtor repos and debtor quasi-
repos
25
5     (1)
This paragraph applies if a company (“the borrower”) has a debtor repo or a
debtor quasi-repo.
      (2)
The advance under the debtor repo or debtor quasi-repo is, in the case of the
borrower, to be treated for the purposes of the loan relationship rules as a
money debt which—
30
(a)
is owed by the borrower or, if the borrower is a member of a
partnership which receives the advance, by the partnership, and
(b)
is owed to the person to whom the securities are initially sold.
      (3)
The arrangement is, in the case of the borrower, to be treated for the
purposes of those rules as a transaction for the lending of money from which
35
that debt is treated as arising for those purposes.
      (4)
Any amount which, in accordance with generally accepted accounting
practice, is recorded in—
(a)
the accounts of the borrower, or
(b)
if the borrower is a member of a partnership which receives the
40
advance, the accounts of the partnership,

as a finance charge in respect of the advance is to be treated for the purposes
of the loan relationship rules and Part 15 of ITA 2007 (deduction of income
tax at source) as interest payable under that debt.
      (5)
That interest is to be treated for those purposes as paid at the earlier of—
45
(a)
the time when the relevant repurchase takes place, and

Finance Bill
Schedule 13 — Sale and repurchase of securities
181

(b)
the time when it becomes apparent that that repurchase will not take
place.
      (6)
For this purpose “the relevant repurchase” means—
(a)
if the borrower has a debtor repo, the subsequent buying of the
securities or similar securities, and
5
(b)
if the borrower has a debtor quasi-repo, the subsequent buying of the
securities or other securities by the borrower, the receipt of the asset
from the borrower or (as the case may be) the discharge of the
liability to the borrower.
Ignoring sale and subsequent purchase for purposes of chargeable gains: debtor repos
10
6     (1)
This paragraph applies if—
(a)
a company (“the borrower”) has a debtor repo, and
(b)
the borrower (having sold the securities under the arrangement to
the lender) is the only person with the right or obligation under the
arrangement to buy those or similar securities at any subsequent
15
time.
      (2)
The sale of the securities, and the subsequent purchase of those or similar
securities, by the borrower under the arrangement are to be ignored for the
purposes of corporation tax in respect of chargeable gains (but see sub-
paragraph (5)).
20
      (3)
If at any time after the initial sale of the securities—
(a)
it becomes apparent that the borrower will not subsequently buy
those or similar securities under the arrangement, or
(b)
the accounting condition ceases to be met,

the borrower is to be treated for the purposes of corporation tax in respect of
25
chargeable gains as disposing of the securities at that time for a
consideration equal to their market value at that time.
      (4)
The accounting condition ceases to be met if, in accordance with generally
accepted accounting practice, the accounts of the borrower for any period
after the one in which the advance is received do not record a financial
30
liability in respect of the advance (except as a result of the subsequent
purchase of the securities or similar securities).
      (5)
If sub-paragraph (3) applies because the accounting condition ceases to be
met, any subsequent purchase of those or similar securities by the borrower
under the arrangement is not to be ignored for the purposes of corporation
35
tax in respect of chargeable gains as a result of this paragraph.
      (6)
For the purposes of this paragraph references to the borrower include a
partnership of which the borrower is a member.
Meaning of creditor repo
7     (1)
For the purposes of this Schedule a company (“the lender”) has a creditor
40
repo if conditions A to E are met.
      (2)
Condition A is that under an arrangement another person (“the borrower”)
receives from the lender any money or other asset (“the advance”).