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Corporation Tax Bill


Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 4 — Continuity of treatment on transfers within groups or on reorganisations

151

 

336     

Transfers of loans on group transactions

(1)   

The case referred to in section 335(1)(a) is where—

(a)   

there is a transaction within subsection (2) or a series of transactions

within subsection (3), and

(b)   

as a result one of the companies involved (“the transferee”) directly or

5

indirectly replaces the other (“the transferor”) as a party to a loan

relationship.

(2)   

A transaction is within this subsection if it is a related transaction between two

companies which are—

(a)   

members of the same group, and

10

(b)   

within the charge to corporation tax in respect of that transaction.

(3)   

A series of transactions is within this subsection if it is a series having the same

effect as a related transaction between two companies each of which—

(a)   

has been a member of the same group at any time in the course of that

series, and

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(b)   

would be within the charge to corporation tax in respect of such a

related transaction.

(4)   

This Chapter does not apply as a result of this section in relation to—

(a)   

a transfer of an asset, or

(b)   

a transfer of rights under, or an interest in, an asset,

20

   

as a result of a transaction within subsection (2) or a series of transactions

within subsection (3) if immediately before or after the transfer the asset is

within one of the categories set out in section 440(4)(a), (d) and (e) of ICTA

(assets held for certain categories of long-term business).

(5)   

In this Chapter, in relation to a case within subsection (1), “the transferee” and

25

“the transferor” have the same meaning as in that subsection.

337     

Transfers of loans on insurance business transfers

(1)   

The case referred to in section 335(1)(b) is where—

(a)   

a transfer between two companies occurs to which this section applies,

and

30

(b)   

as a result one of the companies (“the transferee”) directly or indirectly

replaces the other (“the transferor”) as a party to a loan relationship.

(2)   

This section applies to the transfers specified in subsection (3), so far as they are

not excluded by subsection (4).

(3)   

They are—

35

(a)   

a transfer between two companies of business consisting of the

effecting or carrying out of contracts of long-term insurance which has

effect under an insurance business transfer scheme, and

(b)   

any transfer between two companies which is a qualifying overseas

transfer.

40

(4)   

Subsection (3) does not apply to a transfer of an asset, or of rights under or an

interest in an asset, if the asset—

(a)   

was within one of the categories set out in section 440(4) of ICTA

immediately before the transfer, and

(b)   

is not within that category immediately after it.

45

 
 

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 4 — Continuity of treatment on transfers within groups or on reorganisations

152

 

(5)   

Subsection (6) applies for the purposes of subsection (4) if one of the companies

mentioned in subsection (3) is an overseas life insurance company.

(6)   

An asset is taken as being in the same category both immediately before and

immediately after a transfer if the asset—

(a)   

was in one category immediately before the transfer, and

5

(b)   

is within the corresponding category immediately after it.

(7)   

In this Chapter, in relation to a case within subsection (1), “the transferee” and

“the transferor” have the same meaning as in that subsection.

338     

Meaning of company replacing another as party to loan relationship

(1)   

References in this Chapter to one company (“A”) replacing another company

10

(“B”) as a party to a loan relationship include references to A becoming a party

to a loan relationship which—

(a)   

confers rights within subsection (2),

(b)   

imposes obligations within subsection (2), or

(c)   

both confers such rights and imposes such obligations.

15

(2)   

Rights or obligations are within this subsection if they are equivalent to those

of B under a loan relationship to which B has previously ceased to be a party.

(3)   

For the purposes of subsection (2), A’s rights under a creditor relationship are

equivalent to rights under another creditor relationship if each set of rights

gives the holder of an asset representing the relationship in question—

20

(a)   

the same rights against the same persons as to capital, interest and

dividends, and

(b)   

the same remedies to enforce those rights.

(4)   

For the purposes of subsection (3), any difference in—

(a)   

the total nominal amounts of the assets representing each relationship,

25

(b)   

the form in which they are held, or

(c)   

the way in which they can be transferred,

   

is ignored.

(5)   

For the purposes of subsection (2), A’s obligations under a debtor relationship

are equivalent to obligations under another debtor relationship if each set of

30

obligations subjects the holder of the liability representing the relationship in

question to—

(a)   

the same obligations to the same persons as to capital, interest and

dividends, and

(b)   

the same remedies to enforce those obligations.

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(6)   

For the purposes of subsection (5), any difference in—

(a)   

the total nominal amounts of the assets representing the creditor

relationship corresponding to each relationship,

(b)   

the form in which those assets are held, or

(c)   

the way in which they can be transferred,

40

   

is ignored.

 
 

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 4 — Continuity of treatment on transfers within groups or on reorganisations

153

 

339     

Issues of new securities on certain cross-border reorganisations

(1)   

The case referred to in section 335(1)(c) is where each of conditions A to D is

met.

(2)   

Condition A is that sections 127 to 130 of TCGA 1992 (reorganisations: equation

of original shares and new holding)—

5

(a)   

apply in relation to an exchange as a result of section 135(3) of that Act

(which provides for sections 127 to 130 to apply to an exchange of

securities for those in another company as if it were a reorganisation),

or

(b)   

would so apply but for section 116(5) of that Act (which disapplies

10

sections 127 to 130 where the original shares or the new holding consist

of or include a qualifying corporate bond).

(3)   

Condition B is that the original shares consist of or include an asset

representing a loan relationship.

(4)   

Condition C is that company A is resident in one member State and company

15

B is resident in another member State.

(5)   

For the purposes of this section a company is resident in a member State if—

(a)   

it is within a charge to tax under the law of the State as being resident

for that purpose, and

(b)   

it is not regarded, for the purpose of any double taxation relief

20

arrangements to which the State is a party, as resident in a territory not

within a member State.

(6)   

Condition D is that neither Chapter 13 (European cross-border transfers of

business) nor Chapter 14 (European cross-border mergers) applies in relation

to the exchange.

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(7)   

In this section—

(a)   

“company A” and “company B” have the same meaning as in section

135 of TCGA 1992,

(b)   

“original shares” has the same meaning as it has for the purposes of

sections 126 to 131 of that Act, as applied by section 135 of that Act, and

30

(c)   

“receiving company” means the company to which the issue of shares

in or debentures of company B mentioned in section 135(1) of that Act

is made.

(8)   

If company B is a company to which section 135(5) of TCGA 1992 applies

(companies with no share capital), the reference in subsection (7)(c) to the

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shares in or debentures of company B includes a reference to any interests in

the company possessed by its members.

Continuity of treatment: transfer of loan at notional carrying value

340     

Group transfers and transfers of insurance business: transfer at notional

carrying value

40

(1)   

This section applies in the cases mentioned in—

(a)   

section 336 (transfers of loans on group transactions), and

(b)   

section 337 (transfers of loans on insurance business transfers).

 
 

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 4 — Continuity of treatment on transfers within groups or on reorganisations

154

 

(2)   

The credits and debits to be brought into account for the purposes of this Part

in respect of the loan relationship referred to in section 336(1)(b) or section

337(1)(b) are determined in accordance with subsections (3) to (5).

(3)   

For the accounting period in which the transaction or, as the case may be, the

first of the series of transactions takes place, the transferor is treated as having

5

entered into that transaction for consideration of an amount equal to the

notional carrying value of the asset or liability representing the relationship

(see subsection (6)).

(4)   

For any accounting period in which the transferee is a party to the relationship,

it is treated as if it had acquired the asset or liability representing the

10

relationship for consideration of an amount equal to its notional carrying

value.

(5)   

If a discount arises in respect of the transaction or series of transactions, the

consideration is increased for the purposes of subsection (3) (but not subsection

(4)) by the amount of the discount.

15

(6)   

For the purposes of this section—

(a)   

“carrying value” has the same meaning as it has for the purposes of

section 316 (see section 317),

(b)   

section 480(5) (when discount arises) applies as it applies for the

purposes of section 480, and

20

(c)   

“notional carrying value”, in relation to an asset or liability, means the

amount which would have been its carrying value in the accounts of the

transferor if a period of account had ended immediately before the date

when the transferor ceased to be a party to the loan relationship.

(7)   

Schedule 28AA to ICTA (provision not at arm’s length) does not apply in

25

relation to the amounts in respect of which credits or debits are to be brought

into account under this section.

(8)   

This section is subject to sections 332 and 341.

341     

Transferor using fair value accounting

(1)   

This section applies instead of section 340 if, in a case where that section would

30

otherwise apply, the transferor is regarded for the purposes of this section as

using fair value accounting in respect of the loan relationship (see subsection

(5)).

(2)   

The amount which is to be brought into account by the transferor in respect of

the transaction or the series of transactions referred to in section 340(3) (“the

35

transferor’s amount”) is—

(a)   

if an asset is to be brought into account, its fair value as at the date when

the transferee becomes party to the loan relationship, or the fair value

of the rights under or interest in it as at that date, and

(b)   

if a liability is to be brought into account, its fair value as at that date.

40

(3)   

For any accounting period in which the transferee is a party to the loan

relationship, for the purpose of determining the credits and debits to be

brought into account in respect of the relationship for the purposes of this Part,

the transferee is treated as if it had acquired the asset or liability representing

the relationship for consideration of an amount equal to the transferor’s

45

amount.

 
 

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 4 — Continuity of treatment on transfers within groups or on reorganisations

155

 

(4)   

If a discount arises in respect of the transaction or series of transactions, the

transferor’s amount is increased for the purposes of subsection (2) (but not

subsection (3)) by the amount of the discount.

(5)   

The transferor is regarded for the purposes of this section as using fair value

accounting in respect of the loan relationship only if the credits and debits to

5

be brought into account for the purposes of this Part as respects the

relationship are determined on that basis.

(6)   

It does not matter for the purposes of subsection (5) if the transferor does not

otherwise use fair value accounting in respect of the loan relationship.

(7)   

For the purposes of this section, section 480(5) (when discount arises) applies

10

as it applies for the purposes of section 480.

(8)   

This section is subject to section 332.

342     

Issues of new securities on reorganisations: disposal at notional carrying

value

(1)   

This section applies in the case mentioned in section 339.

15

(2)   

For the purposes of this Part such debits and credits are to be brought into

account as would be brought into account if the exchange were a disposal of

the asset representing the loan relationship referred to in section 339(3) for

consideration of an amount equal to its notional carrying value.

(3)   

For the purposes of this section, the notional carrying value of that asset is the

20

amount that would have been its carrying value in the accounts of the receiving

company if a period of account had ended immediately before the date when

the exchange occurred.

(4)   

In this section—

“carrying value” has the same meaning as it has for the purposes of

25

section 316 (see section 317), and

“receiving company” has the meaning given in section 339(7).

(5)   

This section is subject to section 343.

343     

Receiving company using fair value accounting

(1)   

This section applies instead of section 342 if, in a case where that section would

30

otherwise apply, the receiving company is regarded for the purposes of this

section as using fair value accounting in respect of the loan relationship

constituting or included in the original shares.

(2)   

The amount which is to be brought into account by the receiving company in

respect of the exchange (“the disposal amount”) is the fair value of the asset

35

representing the loan relationship as at the date when the exchange occurred,

or of the rights under or interest in that relationship as at that date.

(3)   

For any accounting period in which company B is a party to the loan

relationship, for the purpose of determining the credits and debits to be

brought into account in respect of the relationship for the purposes of this Part,

40

company B is treated as if it had acquired the asset representing the

relationship for consideration of an amount equal to the disposal amount.

 
 

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 4 — Continuity of treatment on transfers within groups or on reorganisations

156

 

(4)   

Subsections (5) and (6) of section 341 apply for the purposes of this section as

they apply for the purpose of that section, taking references in that section to

the transferor as references to the receiving company.

(5)   

In this section “company B”, “original shares” and “receiving company” have

the meaning given in section 339(7).

5

Transferee leaving group after replacing transferor as party to loan relationship

344     

Introduction

(1)   

Sections 345 and 346 apply if—

(a)   

this Chapter applies in the case mentioned in section 336 (transfers of

loans on group transactions), and

10

(b)   

before the end of the relevant 6 year period and while still a party to the

relevant loan relationship, the transferee ceases to be a member of the

relevant group.

(2)   

But the transferee is not treated for the purposes of this section and sections 345

and 346 as having left the relevant group if—

15

(a)   

an asset or liability which represents a loan relationship is transferred

in the course of a transfer or merger in relation to which Chapter 13

(European cross-border transfers of business) or Chapter 14 (European

cross-border mergers) applies, and

(b)   

the transferee ceases to be a member of the relevant group in

20

consequence of the transfer or merger.

(3)   

In a case where subsection (2) applies, if the transferee becomes a member of

another group in consequence of the transfer or merger, it is treated for the

purposes of this section and sections 345 and 346 as if the relevant group and

the other group were the same.

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(4)   

In this section and sections 345 and 346

“the relevant 6 year period” means the period of 6 years following—

(a)   

in a case where section 340 applies because of a transaction

within section 336(2) (“case A”), that transaction, or

(b)   

in a case where section 340 applies because of a series of

30

transactions within section 336(3) (“case B”), the last transaction

of that series,

“the relevant group” means—

(a)   

in case A, the group mentioned in section 336(2), and

(b)   

in case B, the group mentioned in section 336(3), and

35

“the relevant loan relationship” means the loan relationship mentioned in

section 336(1)(b).

345     

Transferee leaving group otherwise than because of exempt distribution

(1)   

This section applies if—

(a)   

the transferee ceases to be a member of the relevant group, and

40

(b)   

it does not so cease just because of a distribution which is exempt as a

result of—

(i)   

section 213(2) of ICTA (exempt distributions), or

 
 

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 4 — Continuity of treatment on transfers within groups or on reorganisations

157

 

(ii)   

section 213A of ICTA (exempt distributions: division of

business).

(2)   

If condition A or B is met, this Part applies as if—

(a)   

the transferee had assigned the asset or liability representing the

relevant loan relationship immediately before ceasing to be a member

5

of the relevant group,

(b)   

the assignment had been for consideration of an amount equal to the

fair value of the asset or liability at that time, and

(c)   

the transferee had immediately reacquired the asset or liability for

consideration of the same amount.

10

(3)   

Condition A is that if this Part applied as mentioned in subsection (2) because

of that subsection applying, a credit would be brought into account for the

purposes of this Part by the transferee because of subsection (2)(a) and (b).

(4)   

Condition B is that—

(a)   

the relevant loan relationship is a creditor relationship,

15

(b)   

the transferee has a hedging relationship between a derivative contract

and the creditor relationship, and

(c)   

because of section 631(2)(a) and (b) (transferee leaving group otherwise

than because of exempt distribution) a credit is to be brought into

account by the transferee for the purposes of Part 7 (derivative

20

contracts) in respect of the derivative contract.

(5)   

Section 707 (meaning of “hedging relationship”) applies for the purposes of

this section.

346     

Transferee leaving group because of exempt distribution

(1)   

This section applies if—

25

(a)   

the transferee ceases to be a member of the relevant group just because

of a distribution which is exempt as a result of—

(i)   

section 213(2) of ICTA (exempt distributions), or

(ii)   

section 213A of that Act (exempt distributions: division of

business), and

30

(b)   

there is a chargeable payment within the meaning of section 214(2) of

that Act (chargeable payments connected with exempt distributions)

within 5 years after the making of that distribution.

(2)   

If condition A or B is met, this Part applies as if—

(a)   

the transferee had assigned the asset or liability representing the

35

relevant loan relationship immediately before the chargeable payment

was made,

(b)   

the assignment had been for consideration of an amount equal to the

fair value of the asset or liability immediately before the transferee

ceased to be a member of the relevant group, and

40

(c)   

the transferee had immediately reacquired the asset or liability for

consideration of the same amount.

(3)   

Condition A is that if subsection (2) applied a credit would be brought into

account for the purposes of this Part by the transferee because of subsection

(2)(a) and (b).

45

(4)   

Condition B is that—

 
 

 
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