Corporation Tax Bill

House of Commons

Session 2008 - 09
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Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 7 — Group relief claims involving impaired or released consortium debts
169

368
Reduction of claims where there are earlier net consortium debits
(1)
This section applies if—
(a)
for any group accounting period there is a claim by the member
company or a group member for group relief in respect of an amount
which may be surrendered as group relief by debtor consortium
5
companies, and
(b)
the total amount of the net consortium debits for earlier group
accounting periods in respect of the relevant consortium creditor
relationships exceeds any reductions in respect of those debits falling to
be made under section 365(4).
10
(2)
In this section that excess is referred to as “the unreduced debits amount”.
(3)
If—
(a)
the claim is the only claim for that period, and
(b)
it exceeds the unreduced debits amount,

the claim is reduced by the unreduced debits amount.
15
(4)
If—
(a)
the claim is not the only claim for that period, and
(b)
the total of the claims exceeds the unreduced debits amount,

the claim is reduced by the same proportion of the unreduced debits amount
as the claim bears to that total.
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(5)
In any other case, the claim is reduced to nil.
369
Carry forward of claims where there are no net consortium debits
(1)
This section applies if for any group accounting period there is—
(a)
a claim by the member company or a group member for group relief in
respect of an amount which may be surrendered as group relief by
25
debtor consortium companies (as reduced under section 368, if it
applies), and
(b)
no net consortium debit in respect of the relevant consortium creditor
relationships.
(2)
The claim (as so reduced) is carried forward and treated for the purposes of
30
section 365—
(a)
as increasing any such claim for group relief made by the claimant
company for its next accounting period, or
(b)
if apart from this subsection there would be no such claim, as being
such a claim.
35
370
Group accounting periods
(1)
In this Chapter “group accounting period” means—
(a)
any accounting period of the member company beginning on or after 1
October 2002, or
(b)
any accounting period of a group member which—
40
(i)
begins on or after that date, and
(ii)
corresponds to such an accounting period of the member
company.

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 7 — Group relief claims involving impaired or released consortium debts
170

(2)
Any such accounting period of the member company and any such
corresponding accounting periods of group members are treated for the
purposes of this Chapter as being the same accounting period.
(3)
For the purposes of this Chapter an accounting period of a group member
corresponds to an accounting period of the member company if condition A, B
5
or C is met.
(4)
Condition A is that the periods coincide.
(5)
Condition B is that the accounting period of the member company includes
more than half of the accounting period of the group member.
(6)
Condition C is that—
10
(a)
the accounting period of the member company includes part of the
accounting period of the group member, and
(b)
the remainder of that period is not within any accounting period of the
member company.
371
Interpretation
15
(1)
In this Chapter—
“consortium company” means a company within section 402(3)(a), (b) or
(c) of ICTA (surrender of relief between members of consortia),
“debtor consortium company” has the same meaning as in section 364 (see
section 364(2)),
20
“group accounting period” is to be read in accordance with section 370,
“group member” has the same meaning as in section 364 (see section
364(2)),
“group relief” has the meaning given by section 402(1) of ICTA,
“holding company” means a company within section 402(3)(c) of ICTA,
25
“member”, in relation to a consortium, has the same meaning as in
Chapter 4 of Part 10 of ICTA (group relief),
“member company” has the same meaning as in section 364 (see section
364(2)),
“net consortium debit” is to be read in accordance with section 365(2) and
30
(3),
“relevant consortium creditor relationship” is to be read in accordance
with section 364(2), and
“subsidiary”, in relation to a company which is a holding company,
means a company which is within section 402(3)(b) of ICTA by
35
reference to that holding company.
(2)
Any reference in this Chapter to a company being owned by a consortium is to
be read in accordance with section 413(6) of ICTA.
(3)
Any reference in this Chapter to two companies being members of the same
group of companies is a reference to those companies being members of the
40
same group of companies for the purposes of Chapter 4 of Part 10 of ICTA
(group relief) (see section 413(3)(a) of that Act).

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 8 — Connected parties relationships: late interest
171

Chapter 8
Connected parties relationships: late interest
372
Introduction to Chapter
(1)
This Chapter makes provision about the debits to be brought into account for
the purposes of this Part in cases where certain conditions relating to interest
5
that is not paid or is paid late are met and there is a connection between the
parties to the loan relationship.
(2)
For those conditions and the rule that applies in those cases, see section 373
(late interest treated as not accruing until paid in some cases).
(3)
For the kinds of connections where the rule applies, see—
10
(a)
section 374 (connection between debtor and person standing in
position of creditor),
(b)
section 375 (loans to close companies by participators etc),
(c)
section 377 (party to loan relationship having major interest in other
party), and
15
(d)
section 378 (loans by trustees of occupational pension schemes).
(4)
For the meaning of “standing in the position of a creditor” in this Chapter, see
section 379(1) (persons indirectly standing in the position of creditor).
373
Late interest treated as not accruing until paid in some cases
(1)
Debits relating to interest payable under a company’s debtor relationship are
20
to be brought into account for the purposes of this Part on the assumption that
the interest does not accrue until it is paid if—
(a)
conditions A and B are met, and
(b)
the case is within section 374, 375, 377 or 378.
(2)
Condition A is that the interest is not paid within the period of 12 months
25
following the end of the accounting period in which it would be treated as
accruing apart from subsection (1).
(3)
Condition B is that credits representing the full amount of the interest are not
brought into account for the purposes of this Part in respect of the
corresponding creditor relationship for any accounting period.
30
(4)
For the meaning of “corresponding creditor relationship” in cases where
persons indirectly stand in the position of creditor, see section 379(2).
(5)
References in this Chapter to “the actual accrual period” are references to the
accounting period in which the interest would be treated as accruing apart
from subsection (1).
35
374
Connection between debtor and person standing in position of creditor
(1)
The case to which this section applies is where there is for the actual accrual
period a connection between—
(a)
the company which has the debtor relationship, and
(b)
a company standing in the position of creditor as respects the loan
40
relationship.

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 8 — Connected parties relationships: late interest
172

(2)
Section 466 (companies connected for an accounting period) applies for the
purposes of this section.
375
Loans to close companies by participators etc
(1)
The case to which this section applies is where—
(a)
there is a time in the actual accrual period when the close company
5
conditions are met, and
(b)
neither the CIS-based close company conditions nor the CIS limited
partnership conditions are met.
(2)
The close company conditions are that—
(a)
the company which has the debtor relationship (“D”) is a close
10
company, and
(b)
a person (“C”) standing in the position of creditor as respects the loan
relationship is—
(i)
a participator in D,
(ii)
the associate of a person who is participator in D,
15
(iii)
a company of which a participator in D has control,
(iv)
a company in which a participator in D has a major interest,
(v)
a person who controls a company which is a participator in D,
(vi)
the associate of a person within sub-paragraph (v), or
(vii)
a company controlled by a person within sub-paragraph (v).
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(3)
The CIS-based close company conditions are that—
(a)
D is a CIS-based close company at all times when the close company
conditions are met,
(b)
C is not resident in a non-qualifying territory at any such time, and
(c)
D is a small or medium-sized enterprise for the actual accrual period.
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(4)
The CIS limited partnership conditions are that—
(a)
the debt is one which is owed to, or to persons acting for, a CIS limited
partnership,
(b)
no member of that partnership is resident in a non-qualifying territory
at any time in the actual accrual period,
30
(c)
D has received written notice from the partnership containing
information from which it appears that the condition in paragraph (b)
is met, and
(d)
D is a small or medium-sized enterprise for the actual accrual period.
(5)
Section 376 applies for the interpretation of this section.
35
376
Interpretation of section 375
(1)
For the purposes of section 375 and this section, section 414 of ICTA (meaning
of “close company” in the Tax Acts) applies with the omission of section
414(1)(a) (exclusion of non-UK resident companies).
(2)
A person who is a participator in a company which controls another company
40
is treated for the purposes of section 375 and this section as being a participator
in that other company also.
(3)
Subject to that, in section 375 and this section “participator”, in relation to a
company, means a person who is a participator in the company for the

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 8 — Connected parties relationships: late interest
173

purposes of Part 11 of ICTA because of section 417 of that Act, but not a person
who is a participator for those purposes just because of being a loan creditor of
the company.
(4)
Section 472 (meaning of “control”) applies for the purposes of section 375 and
this section.
5
(5)
In section 375—
“CIS-based close company” means a company which would not be a close
company apart from the rights and powers of one or more partners in
a CIS limited partnership being attributed to another of the partners
under section 416(6) of ICTA because of section 417(3)(a) of that Act,
10
“CIS limited partnership” means a limited partnership—
(a)
which is a collective investment scheme, or
(b)
which would be a collective investment scheme if it were not a
body corporate,
“non-qualifying territory” has the meaning given by paragraph 5E of
15
Schedule 28AA to ICTA,
“resident” has the meaning given by paragraph 5B(6) of that Schedule,
and
“small or medium-sized enterprise” has the meaning given by paragraph
5D of that Schedule.
20
377
Party to loan relationship having major interest in other party
The case to which this section applies is where—
(a)
a person (“C”) standing in the position of a creditor as respects the loan
relationship is a company, and
(b)
there is a time in the actual accrual period when—
25
(i)
the company which has the debtor relationship (“D”) has a
major interest in C, or
(ii)
C has a major interest in D.
378
Loans by trustees of occupational pension schemes
(1)
The case to which this section applies is where—
30
(a)
the loan is one made by trustees of an occupational pension scheme,
and
(b)
condition A, B or C is met.
(2)
Condition A is that there is a time in the actual accrual period when the
company which has the debtor relationship (“D”) is the employer of employees
35
to whom the scheme relates.
(3)
Condition B is that there is a connection between D and such an employer for
the actual accrual period.
(4)
Condition C is that a company is such an employer and there is a time in the
actual accrual period when—
40
(a)
D has a major interest in that company, or
(b)
that company has a major interest in D.
(5)
In this section “occupational pension scheme” has the meaning given in section
150(5) of FA 2004.

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 9 — Partnerships involving companies
174

(6)
Section 466 (companies connected for an accounting period) applies for the
purposes of this section.
379
Persons indirectly standing in the position of creditor
(1)
For the purposes of this Chapter a person is treated as standing in the position
of a creditor as respects a loan relationship if the person indirectly stands in
5
that position by reference to a series of loan relationships or relevant money
debts.
(2)
If—
(a)
a person (“C”) indirectly stands in the position of creditor as respects a
loan relationship by reference to such a series of relationships or debts,
10
and
(b)
section 373 (late interest treated as not accruing until paid in some
cases) applies in relation to the debtor relationship because of
subsection (1),

the reference in section 373(3) to the corresponding creditor relationship is a
15
reference to C’s creditor relationship.
(3)
In subsection (1) “relevant money debt” means a money debt which would be
a loan relationship if a company directly stood in the position of creditor or
debtor.
Chapter 9
20
Partnerships involving companies
380
Partnerships involving companies
(1)
This section applies if—
(a)
a trade or business is carried on by a firm,
(b)
any of the partners in the firm is a company (a “company partner”), and
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(c)
a money debt is owed by or to the firm.
(2)
In calculating the profits and losses of the trade or business for corporation tax
purposes under section 1259 (calculation of firm’s profits or losses), no credits
or debits may be brought into account under this Part—
(a)
in relation to the money debt, or
30
(b)
in relation to any loan relationship that would fall to be treated for the
purposes of the calculation as arising from the money debt.
(3)
Instead, each company partner must bring credits and debits into account
under this Part in relation to the debt or relationship for each of its accounting
periods in which the conditions in subsection (1) are met.
35
(4)
The following provisions of this Chapter contain special rules about the credits
and debits to be brought into account under subsection (3)—
(a)
section 381 (determinations of credits and debits by company partners:
general),
(b)
section 382 (company partners using fair value accounting),
40
(c)
section 383 (lending between partners and the partnership),
(d)
section 384 (treatment of exchange gains and losses), and

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 9 — Partnerships involving companies
175

(e)
section 385 (company partners’ shares where firm owns deeply
discounted securities).
(5)
In those provisions “company partner” has the same meaning as in this section.
381
Determinations of credits and debits by company partners: general
(1)
The credits and debits to be brought into account under section 380(3) are to be
5
determined separately for each company partner as follows.
(2)
The money debt owed by or to the firm is treated as if—
(a)
it were owed by or, as the case may be, to the company partner, and
(b)
it were so owed for the purposes of the trade or business which the
company partner carries on.
10
(3)
If the money debt arises from a transaction for the lending of money—
(a)
it continues to be treated as so arising, and
(b)
accordingly the company partner is treated as having a loan
relationship.
(4)
Anything done by or in relation to the firm in connection with the money debt
15
is treated as done by or in relation to the company partner.
(5)
The credits and debits in the case of each company partner are the partner’s
appropriate share of the total credits and debits determined in accordance with
subsections (2) to (4) (without any reduction for the fact that the debt is treated
as owed by or to each company partner).
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(6)
A company partner’s “appropriate share” is the share that would be
apportioned to it on the assumption in subsection (7).
(7)
The assumption is that the total credits and debits determined in accordance
with subsections (2) to (4) are apportioned between the partners in the shares
in which any profit or loss would be apportioned between them in accordance
25
with the firm’s profit-sharing arrangements.
382
Company partners using fair value accounting
(1)
This section applies if a company partner uses fair value accounting in relation
to its interest in the firm.
(2)
The credits and debits to be brought into account by the company partner
30
under section 380(3) are to be determined on the basis of fair value accounting.
383
Lending between partners and the partnership
(1)
This section applies if—
(a)
the money debt owed by or to the firm arises from a transaction for the
lending of money, and
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(b)
there is a time in an accounting period of a company partner (“the
relevant accounting period”) when conditions A, B and C are met.
(2)
Condition A is that—
(a)
if the debt is owed by the firm, the company partner stands in the
position of a creditor and accordingly has a creditor relationship, and
40