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Finance Bill
Schedule 22 — Avoidance involving financial arrangements

277

 

(b)   

so much of the loss of the straddling period (if any) as derives from

relevant pre-announcement capital expenditure.

      (9)  

For the purposes of this paragraph the amount of the loss of the straddling

basis period that derives from relevant pre-announcement capital

expenditure is determined on a just and reasonable basis.

5

     (10)  

In this paragraph “relevant pre-announcement capital expenditure”

means—

(a)   

any capital allowance in respect of expenditure paid before 12 March

2008, and

(b)   

any capital allowance in respect of expenditure paid on or after that

10

date pursuant to an unconditional obligation in a contract made

before that date;

           

and for this purpose “an unconditional obligation” means an obligation

which may not be varied or extinguished by the exercise of any right

conferred on the individual in question (whether or not under the contract).

15

7     (1)  

Section 74B of ITA, and the other provisions inserted into that Act by this

Schedule so far as relating to that section, have effect in relation to a loss

arising directly or indirectly in consequence of, or otherwise in connection

with, relevant tax avoidance arrangements made on or after 12 March 2008.

      (2)  

But those provisions do not have effect if the arrangements were made

20

pursuant to an unconditional obligation in a contract made before that date;

and for this purpose “an unconditional obligation” means an obligation

which may not be varied or extinguished by the exercise of any right

conferred on the individual in question (whether or not under the contract).

Schedule 22

25

Section 59

 

Avoidance involving financial arrangements

Rent factoring of leases of plant or machinery

1     (1)  

Section 785A of ICTA (rent factoring of leases of plant or machinery) is

amended as follows.

      (2)  

In subsection (1), omit paragraph (d).

30

      (3)  

In subsection (2)—

(a)   

for “relevant portion of the consideration” substitute “market value

of the rights transferred”, and

(b)   

for “in a period of account to the extent that it is receivable in that

period of account” substitute “at the time of the transfer”.

35

      (4)  

After that subsection insert—

“(2A)   

But subsection (2) does not apply if and to the extent that any of the

market value of the rights transferred is (apart from this section)

brought into account—

(a)   

as income, or

40

(b)   

as a capital allowances disposal receipt.”

 
 

Finance Bill
Schedule 22 — Avoidance involving financial arrangements

278

 

      (5)  

After subsection (5) insert—

“(5ZA)   

The references in subsections (1)(c) and (3) to another person include

any person in which P has an interest, including any partnership of

which P is a member and the trustees of any trust of which P is a

beneficiary.”

5

      (6)  

The amendments made by this paragraph have effect in relation to

arrangements for transfers of rights entered into on or after 12 March 2008.

Credit allowable in relation to interest

2     (1)  

In section 807A of ICTA (disposals and acquisitions of company loan

relationships with or without interest), omit subsection (3) (credit allowable

10

as if amount of foreign tax had been paid).

      (2)  

Accordingly, omit—

(a)   

in section 807A of ICTA, subsections (5) and (6) and, in subsection

(7), the definitions of “related transaction” and “trading credit”, and

(b)   

section 91(4) of FA 1997.

15

      (3)  

The repeals made by this paragraph have effect in relation to related

transactions on or after 12 March 2008.

Distributions arising from tax arrangements

3     (1)  

In paragraph 1 of Schedule 9 to FA 1996 (loan relationships: distributions),

after sub-paragraph (1) insert—

20

   “(1A)  

Credits relating to any amount which falls, when paid, to be

treated as a distribution in respect of a loan relationship are to be

brought into account for the purposes of this Chapter if the

amount arises in consequence of, or otherwise in connection with,

arrangements the purpose, or one of the main purposes, of which

25

is securing for any person a tax advantage; and for this purpose—

(a)   

“arrangements” includes any agreement, understanding,

scheme, transaction or series of transactions, and

(b)   

“tax advantage” has the meaning given by section 840ZA

of the Taxes Act 1988.”

30

      (2)  

The amendment made by sub-paragraph (1) has effect in relation to

accounting periods ending on or after 12 March 2008 but, in the case of an

accounting period beginning before that date, only if the credits relate to any

time on or after that date.

Distributions from shares treated as loan relationships

35

4     (1)  

In FA 1996, in—

(a)   

section 91A(2)(b) (distributions in respect of shares subject to

outstanding third party obligations), and

(b)   

section 91B(2)(b) (distributions in respect of non-qualifying shares),

           

omit “falling within section 209(2)(a) or (b) of the Taxes Act 1988”.

40

      (2)  

The repeals made by sub-paragraph (1) have effect in relation to

distributions on or after 9 October 2007.

 
 

Finance Bill
Schedule 22 — Avoidance involving financial arrangements

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Depreciatory transactions

5     (1)  

Section 91A of FA 1996 (shares treated as loan relationship: shares subject to

outstanding third party obligations which are interest-like investments) is

amended as follows.

      (2)  

After subsection (2) insert—

5

“(2A)   

No debits are to be brought into account by the investing company

for the purposes of this Chapter as respects the share.”

      (3)  

In subsections (3) and (4), omit “debits and”.

6     (1)  

Section 91B of FA 1996 (shares treated as loan relationship: non-qualifying

shares) is amended as follows.

10

      (2)  

After subsection (2) insert—

“(2A)   

No debits are to be brought into account by the investing company

for the purposes of this Chapter as respects the share.”

      (3)  

In subsections (3) and (4), omit “debits and”.

      (4)  

After subsection (6) insert—

15

“(6A)   

Where a share is a non-qualifying share for the purposes of this

section by reason of the Condition in section 91E being satisfied—

(a)   

subsection (2A) does not apply in relation to the share, but

(b)   

the amount of the debits brought into account by the

investing company as respects the share are not to exceed the

20

amount of the credits brought into account in respect of the

associated transactions under Schedule 26 to the Finance Act

2002.”

7          

The amendments made by paragraphs 5 and 6 have effect in relation to

accounting periods ending on or after 12 March 2008 but, in the case of an

25

accounting period beginning before that date, only if the debits relate to any

time on or after that date.

Falsifying transactions

8     (1)  

Section 91A of FA 1996 (shares treated as loan relationship: shares subject to

outstanding third party obligations) is amended as follows.

30

      (2)  

In subsection (7), for “paragraph (b) above” substitute “this subsection”.

      (3)  

In subsection (8)(b), after “will be” insert “or has been”.

9     (1)  

Section 91C of FA 1996 (shares treated as loan relationship: shares likely to

increase in value at rate representing return on investment of money) is

amended as follows.

35

      (2)  

In subsection (1), for “paragraph (b) above” substitute “this subsection”.

      (3)  

In subsection (6), for “entered into by the investing company” substitute “or

has been entered into”.

10         

The amendments made by paragraphs 8 and 9 have effect in relation to times

on or after 12 March 2008.

40

 
 

Finance Bill
Schedule 22 — Avoidance involving financial arrangements

280

 

Exit arrangements

11    (1)  

In section 91D(2) of FA 1996 (shares treated as loan relationship: redeemable

shares), omit “or” at the end of paragraph (a) and insert at the end “or

(c)   

it is reasonable to assume that the investing company will or

might become entitled to qualifying redemption amounts.”

5

      (2)  

The amendment made by sub-paragraph (1) has effect in relation to times on

or after 12 March 2008.

Schemes etc designed to reproduce interest-like return

12    (1)  

Section 91E of FA 1996 (shares treated as loan relationship: schemes etc

designed to produce return equating to return on investment of money at

10

interest) is amended as follows.

      (2)  

In subsection (1)—

(a)   

after “arrangement” insert “(whether or not the investing company is

a party to it)”, and

(b)   

after “return” insert “(for any one or more persons)”.

15

      (3)  

In subsection (3), insert at the end (but not as part of paragraph (d))—

         

          “and acquiring rights or receiving benefits in respect of other shares.”

      (4)  

The amendments made by this paragraph have effect in relation to times on

or after 12 March 2008.

Partnerships

20

13    (1)  

In FA 1996, after section 91G insert—

“Partnerships

91H     

Payments in return for capital contribution

(1)   

This section applies where a company is a party to relevant

arrangements under which—

25

(a)   

a partnership of which it is a member is or may become

entitled to receive a capital contribution from any person

(whether directly or indirectly), and

(b)   

that person, or a person connected with that person, receives

a sum of money or other asset from the company (whether

30

directly or indirectly).

(2)   

In subsection (1) “relevant arrangements” means arrangements—

(a)   

which are designed to produce for the company a return

which equates, in substance, to a return on the investment of

the money or other asset at a commercial rate of interest, and

35

(b)   

the purpose or one of the main purposes of the arrangements

is to secure a tax advantage.

(3)   

The return is to be treated for the purposes of this Chapter as a profit

from a loan relationship of the company; and the credits to be

brought into account in respect of the loan relationship are to be

40

determined on the amortised cost basis of accounting.

 
 

Finance Bill
Schedule 22 — Avoidance involving financial arrangements

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(4)   

But where the return to any extent represents partnership profits in

respect of which the company is chargeable to corporation tax

(whether for the same or any earlier accounting period), the charge

to corporation tax is to be reduced to such extent as is just and

reasonable.

5

(5)   

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

purposes of subsection (1).

(6)   

In subsection (2)—

(a)   

“arrangements” includes any agreement, understanding,

scheme, transaction or series of transactions, and

10

(b)   

“tax advantage” has the meaning given by section 840ZA of

the Taxes Act 1988.

91I     

Change of partnership shares

(1)   

This section applies where a company is a party to relevant

arrangements under which—

15

(a)   

the company makes a capital contribution to a partnership of

which it is a member,

(b)   

profits of the partnership fall to be shared in a way such that

the company is not allocated the whole of its due share of the

profits, and

20

(c)   

the capital of the partnership falls to be shared in a way such

that the company or a person connected with the company is

entitled to more than the whole of its due share of the capital.

(2)   

In subsection (1) “relevant arrangements” means arrangements—

(a)   

which are designed to produce for the company a return

25

which equates, in substance, to a return on the investment of

the capital contribution at a commercial rate of interest, and

(b)   

the purpose or one of the main purposes of the arrangements

is to secure a tax advantage.

(3)   

The return is to be treated for the purposes of this Chapter as a profit

30

from a loan relationship of the company; and the credits to be

brought into account in respect of the loan relationship are to be

determined on the amortised cost basis of accounting.

(4)   

But where the return to any extent represents partnership profits in

respect of which the company is chargeable to corporation tax

35

(whether for the same or any earlier accounting period), the charge

to corporation tax is to be reduced to such extent as is just and

reasonable.

(5)   

For the purposes of subsection (1) a company’s “due share” of any

profits or capital is the share that the company would have been

40

allocated or entitled to if allocation or entitlement were determined

by reference to the proportion of the total capital contributed to the

partnership that was contributed by it.

(6)   

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

purposes of subsection (1).

45

(7)   

In subsection (2)—

 
 

Finance Bill
Schedule 22 — Avoidance involving financial arrangements

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(a)   

“arrangements” includes any agreement, understanding,

scheme, transaction or series of transactions, and

(b)   

“tax advantage” has the meaning given by section 840ZA of

the Taxes Act 1988.”

      (2)  

In section 131 of FA 2004 (companies in partnership), insert at the end—

5

“(10)   

Subsection (4) does not apply if and to the extent that the chargeable

amount is brought into account under section 91H or 91I of the

Finance Act 1996.”

      (3)  

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

arising on or after 12 March 2008.

10

Loan relationships treated differently by debtor and creditor

14    (1)  

In FA 1996, after section 94A insert—

“94B    

Loan relationships treated differently by connected debtor and

creditor

(1)   

This section applies where there are two companies which are

15

connected and conditions A, B and C are met.

(2)   

Condition A is that one of the companies (“the debtor company”), in

accordance with generally accepted accounting practice, treats the

rights and liabilities under a loan relationship to which it is a party

as debtor as divided between—

20

(a)   

rights and liabilities under a loan relationship (“the host

contract”), and

(b)   

rights and liabilities under one or more derivative financial

instruments or equity instruments.

(3)   

Condition B is that the other company is party to the loan

25

relationship as creditor (“the creditor company”) and, in accordance

with generally accepted accounting practice, does not treat its rights

and liabilities under the loan relationship as so divided.

(4)   

Condition C is that the debits brought into account by the debtor

company under this Chapter in respect of the host contract for any

30

accounting period exceed the credits brought into account

(otherwise than by virtue of this section) in respect of the loan

relationship by the creditor company for the corresponding

accounting period or periods of the creditor company.

(5)   

The creditor company is to be treated for the purposes of this

35

Chapter as bringing into account for the corresponding accounting

period or periods additional credits in respect of the loan

relationship of an amount equal to the excess.

(6)   

But where the creditor company is party to the loan relationship as

creditor during only part of the corresponding accounting period (or

40

any of the corresponding periods) it is to be treated for those

purposes as bringing into account for the period only such portion of

the excess as is just and reasonable.

(7)   

The references in this section to a company which is party to a loan

relationship as debtor or creditor include a company which

45

 
 

Finance Bill
Schedule 22 — Avoidance involving financial arrangements

283

 

indirectly stands in the position of a debtor or creditor as respects the

loan relationship by reference to a series of loan relationships or

money debts which would be loan relationships if a company

directly stood in the position of debtor or creditor.

(8)   

For the purposes of this section an accounting period of the creditor

5

company corresponds with an accounting period of the debtor

company if it coincides with it or falls wholly or partly within it.

(9)   

Where a corresponding accounting period of the creditor company

does not coincide with that of the debtor company such

apportionments as are just and reasonable are to be made for the

10

purposes of this section.

(10)   

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

purposes of this section; but two companies are also connected for

the purposes of this Schedule if their accounting results are reflected

in the consolidated group accounts of a group of companies.”

15

      (2)  

In paragraph 7 of Schedule 6 to F(No.2)A 2005 (loan relationships with

embedded derivatives), after sub-paragraph (1) insert—

   “(1A)  

An election under this paragraph does not have effect in relation

to any relevant assets in the case of which section 94B of FA 1996

applies.”

20

      (3)  

The amendments made by sub-paragraph (1) have effect in relation to debits

and credits arising on or after 12 March 2008.

      (4)  

The amendment made by sub-paragraph (2) has effect in relation to elections

made on or after that date.

Commercial rate of interest

25

15    (1)  

In section 103 of FA 1996 (interpretation of Chapter 2 of Part 4), omit

subsections (3A) and (3B) (meaning of “commercial rate of interest”).

      (2)  

Accordingly, in Schedule 7 to F(No.2)A 2005, omit paragraph 13.

      (3)  

The amendments made by this paragraph have effect in relation to times on

or after 12 March 2008.

30

Derivative contracts

16    (1)  

Schedule 26 to FA 2002 (derivative contracts) is amended as follows.

      (2)  

In paragraph 3(1)(b)(ii) (contract must be treated for accounting purposes as

financial asset or liability), for “is treated for accounting purposes as, or as

forming” substitute “for accounting purposes is, or forms”.

35

      (3)  

In paragraph 4(2)(b) (contracts excluded by virtue of underlying subject

matter) after “(2D)” insert “and which are not designed to produce a return

which equates, in substance, to the return on an investment of money at a

commercial rate of interest”.

      (4)  

The amendments made by this paragraph have effect in relation to

40

accounting periods ending on or after 12 March 2008.

 
 

 
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