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Corporation Tax Bill


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

176

 

(b)   

if the debt is owed to the firm, the company partner stands in the

position of a debtor and accordingly has a debtor relationship.

(3)   

Condition B is that the company partner controls the firm either alone or taken

together with one or more other company partners connected with the

company partner (see subsection (7)).

5

(4)   

Condition C is that the company partner or any other company partner is

treated under section 381(3) as if—

(a)   

it had the debtor relationship which corresponds to the creditor

relationship mentioned in subsection (2)(a), or

(b)   

it had the creditor relationship which corresponds to the debtor

10

relationship mentioned in subsection (2)(b).

(5)   

If this section applies, for the purposes of this Part for the relevant accounting

period there is taken to be a connection between—

(a)   

the company partner, and

(b)   

each company partner that is within subsection (4) (including the

15

company partner itself if it is within that subsection),

   

as a result of one of them having control of the other at a time in the period for

the purposes of section 466(2).

(6)   

The provisions of this Part about connected companies relationships apply

accordingly.

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(7)   

For the purposes of subsection (3), one company partner is connected with

another at any time in an accounting period if at that or any other time in the

accounting period—

(a)   

one controls the other, or

(b)   

both are under the control of the same person.

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(8)   

Section 472 (meaning of “control”) applies for the purposes of this section.

384     

Treatment of exchange gains and losses

(1)   

Whether credits and debits in respect of exchange gains and losses are to be

brought into account by a company partner under this Chapter as a result of

section 328(1), or that section is disapplied by section 328(3), depends on the

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firm’s accounts.

(2)   

Section 328(3) applies only so far as exchange gains and losses are recognised

in the firm’s statement of total recognised gains and losses, statement of

recognised income and expense, statement of changes in equity or statement of

income and retained earnings.

35

(3)   

Accordingly, a company partner must bring credits and debits into account

under this Chapter in respect of exchange gains and losses which are not so

recognised.

(4)   

For the meaning of references in this section to exchange gains and losses, see

section 475.

40

385     

Company partners’ shares where firm owns deeply discounted securities

(1)   

This section applies if the firm holds a deeply discounted security.

 
 

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 10 — Insurance companies

177

 

(2)   

Each partner is treated for the purposes of this Chapter as beneficially entitled

to the share of the security specified in subsection (3).

(3)   

That share is the share to which the partner would be entitled if—

(a)   

all the partners were companies, and

(b)   

the security were apportioned in the shares in which any profit or loss

5

would be apportioned between them in accordance with the firm’s

profit-sharing arrangements.

(4)   

In this section “deeply discounted security” has the same meaning as in

Chapter 8 of Part 4 of ITTOIA 2005 (profits from deeply discounted securities)

(see section 430 of that Act).

10

Chapter 10

Insurance companies

Introduction

386     

Overview of Chapter

(1)   

This Chapter contains special rules about the treatment of the loan

15

relationships of insurance companies.

(2)   

In particular, it—

(a)   

provides for special rules to apply in relation to an insurance

company’s non-trading deficits referable to BLAGAB instead of those

in Chapter 16 (see sections 387 to 391),

20

(b)   

excludes some loan relationships of corporate members of Lloyd’s

from this Part (see section 392), and

(c)   

provides for the determination of questions concerning how far certain

matters are referable to any particular category of a company’s long-

term business (see sections 393 and 394).

25

(3)   

For further special rules affecting insurance companies, see—

(a)   

section 298(3) (under which activities carried on by a company in the

course of mutual insurance business which is not life assurance

business or of BLAGAB are treated as not constituting a trade or part of

a trade),

30

(b)   

Chapter 4 (continuity of treatment on transfers within groups or on

reorganisations), and, in particular, sections 335(1) and (2), 336(4) and

337,

(c)   

section 405 (certain non-UK residents with interest on 3½% War Loan

1952 Or After),

35

(d)   

sections 468 and 471 (connection between creditor and debtor

companies to be ignored in some cases where creditor is insurance

company carrying on BLAGAB),

(e)   

section 483(6) (treatment of deferred acquisition costs and provision for

unearned premiums or for unexpired risks as a money debt for the

40

purposes of Chapter 2 of Part 6 in the case of companies carrying on

insurance business), and

 
 

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 10 — Insurance companies

178

 

(f)   

section 486(4) (no exchange gains or losses to arise for the purposes of

that Chapter where relevant debts prevented from being deductible as

expenses of insurance companies at Step 1 of section 76(7) of ICTA).

(4)   

In this Chapter “BLAGAB” means basic life assurance and general annuity

business.

5

Treatment of deficit on basic life assurance and general annuity business

387     

Treatment of deficit on basic life assurance and general annuity business:

introduction

(1)   

Sections 388 to 391 apply instead of Chapter 16 (non-trading deficits) if a

company has a non-trading deficit from its loan relationships for BLAGAB for

10

any accounting period.

(2)   

In those sections “the deficit” and “the deficit period” mean that deficit and that

period respectively.

388     

Basic rule: deficit set off against income and gains of deficit period

(1)   

The basic rule is that the deficit must be set off against any income and gains of

15

the deficit period which are referable to BLAGAB.

(2)   

The income and gains are reduced accordingly.

(3)   

Any such reduction is made before any expenses deduction under section 76

of ICTA (expenses of insurance companies).

389     

Claim to carry back deficit

20

(1)   

If the deficit exceeds the income and gains for the deficit period referred to in

section 388(1), the company may make a claim for the whole or part of the

excess (“the claim amount”)—

(a)   

to be carried back for up to 3 accounting periods ending within the

permitted period, and

25

(b)   

to be set off against the available profits of the company in those

periods in accordance with subsection (2).

(2)   

The claim amount reduces the company’s available profits in the most recent

accounting period of the company, before any remainder reduces those in the

next most recent accounting period and then those in the next most recent

30

accounting period.

(3)   

For the meaning of “available profits”, see section 390.

(4)   

In this section and that section “permitted period” means the period of 12

months immediately before the deficit period.

(5)   

A claim under this section must be made—

35

(a)   

within the period of 2 years after the end of the deficit period, or

(b)   

within such further period as an officer of Revenue and Customs

allows.

 
 

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 10 — Insurance companies

179

 

390     

Meaning of “available profits”

(1)   

For the purposes of section 389 the available profits of the company for an

accounting period are its BLAGAB non-trading loan relationships profits for

the period (see subsection (4)), less the unused part of the relevant deductions

for the period (see subsection (5)).

5

(2)   

If an accounting period ending within the permitted period begins before it,

only a part of the amount which would otherwise be the available profit for

that accounting period is available profit.

(3)   

That part is so much as is proportionate to the part of the accounting period in

the permitted period.

10

(4)   

References in this section to a company’s BLAGAB non-trading loan

relationships profits for an accounting period are references to the amount (if

any) which is chargeable to tax for that period under section 299 (charge to tax

on non-trading profits) for the company’s BLAGAB.

(5)   

The unused part of the relevant deductions for an accounting period is found

15

as follows.

Step 1

   

Add together—

(a)   

so much of the expenses deduction for the period given by Step 8 in

section 76(7) of ICTA (expenses of insurance companies) as is referable

20

to BLAGAB, and

(b)   

so much of the sum of the deductions made in the case of the company

in respect of charges on income for that period as is so referable.

Step 2

   

Add together—

25

(a)   

the total amounts so referable which could be applied for the period in

making deductions as a result of section 76 of ICTA if the company’s

BLAGAB non-trading loan relationships profits for the period were

disregarded, and

(b)   

the total amounts so referable which could be applied for the period in

30

making deductions in respect of charges on income if those profits were

disregarded.

Step 3

   

Subtract the amount found at Step 2 from the amount found at Step 1.

   

The result is the unused part of the relevant deductions for the accounting

35

period.

(6)   

In the case of any claim under section 389, the reference in Step 1(a) in

subsection (5) to the expenses deduction for an accounting period given by

Step 8 in section 76(7) of ICTA and the reference in Step 2(a) in subsection (5)

to the deduction for expenses as a result of section 76 of ICTA for an accounting

40

period are references to the deduction for expenses that would been made as a

result of that section for that period on the assumptions in subsections (7) and

(8).

(7)   

The first assumption is that no account is taken of—

(a)   

that claim, or

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Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 10 — Insurance companies

180

 

(b)   

any other claim under section 389 relating to a deficit for an accounting

period after the deficit period.

(8)   

The second assumption is that all such adjustments are made as are required

as a result of any sum having been carried back under the Corporation Tax

Acts to the accounting period mentioned in subsection (5), otherwise than as a

5

result of—

(a)   

the claim mentioned in subsection (6), or

(b)   

any such other claim as is mentioned in subsection (7)(b).

391     

Carry forward of surplus deficit to next accounting period

(1)   

This rule applies if any of the deficit is not—

10

(a)   

set off against the income and gains referred to in section 388(1), or

(b)   

set off against the profits referred to in section 389(1) as the result of a

claim under that section.

(2)   

That deficit must be carried forward to the accounting period immediately

after the deficit period (“the next period”).

15

(3)   

Any deficit so carried forward is treated for the purposes of the Corporation

Tax Acts (including sections 388 to 390) as expenses payable which—

(a)   

are referable to the next period, and

(b)   

are to be brought into account at Step 3 in section 76(7) of ICTA

(expenses of insurance companies).

20

Exclusion of loan relationships of members of Lloyd’s

392     

Exclusion of loan relationships of members of Lloyd’s

(1)   

This section applies to any loan relationship of a corporate member of Lloyd’s.

(2)   

This Part does not apply as respects the relationship so far as rights or liabilities

under it or securities representing it are—

25

(a)   

assets forming part of the member’s premium trust fund, or

(b)   

liabilities attached to that fund.

(3)   

In this section “corporate member” and “premium trust fund” have the same

meaning as in Chapter 5 of Part 4 of FA 1994 (Lloyd’s underwriters:

corporations etc) (see section 230(1) of that Act).

30

Determination of questions requiring apportionments

393     

General rules for some debtor relationships

(1)   

This section applies if a debtor relationship of an insurance company is

represented by a liability which is a liability of its long-term insurance fund.

(2)   

Any question arising for the purposes of the Corporation Tax Acts as to how

35

far any credits or debits given for the purposes of this Part in respect of the

liability are referable to any particular category of the company’s long-term

business is determined as follows.

(3)   

In the case of credits and debits within the rules in section 394, that section

applies.

40

 
 

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 10 — Insurance companies

181

 

(4)   

In the case of other credits and debits, the relevant fraction of the credits or

debits is referable to a category of long-term business.

(5)   

That fraction is determined by applying section 432A(6) to (6B) and (8) of ICTA

(apportionment of income and gains) as if—

(a)   

the credits or debits were income not directly referable to any category

5

of business, and

(b)   

the references in section 432A(6) to assets directly referable to a

category of business were references to assets linked to that category.

394     

Special rules for some debtor relationships

(1)   

This section sets out the rules referred to in section 393(3) as to how far certain

10

credits or debits given for the purposes of this Part in respect of liabilities

representing a debtor relationship of an insurance company which are

liabilities of its long-term insurance fund are referable to any particular

category of its long-term business.

(2)   

If the liabilities are liabilities of an internal linked fund of the company relating

15

to one category of long-term business, the credits or debits are referable to that

category.

(3)   

If the liabilities are liabilities of an internal linked fund of the company relating

to two or more such categories, the credits or debits are referable to those

categories in the same proportions as the linked assets in the fund are

20

apportioned to them under section 432ZA(4) of ICTA (linked assets).

(4)   

If—

(a)   

the liabilities arise from deposit back arrangements, and

(b)   

the business reinsured by the arrangements under which the deposit

back arrangements are made (“the reinsurance arrangements”) is

25

within one category of long term business,

   

the credits or debits are referable to that category.

(5)   

If—

(a)   

the liabilities arise from deposit back arrangements, and

(b)   

the business reinsured by the reinsurance arrangements is within two

30

or more such categories,

   

the credits or debits are referable to those categories in the same proportions as

the relevant proportions of the liabilities reinsured by the arrangements which

are liabilities relating to those categories.

(6)   

For the purposes of subsection (5) “relevant proportion”, in relation to

35

reinsured liabilities of any particular category of business, means the average

of—

(a)   

the proportion of all the reinsured liabilities that are liabilities relating

to that category at the beginning of the period of account, and

(b)   

the proportion of all the reinsured liabilities that are liabilities relating

40

to that category at the end of that period.

(7)   

Debits relating to interest payable in respect of the late payment of any benefits

are referable to the category of long-term business that comprises the effecting

and carrying out of the policies or contracts under which the benefits are

payable.

45

 
 

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 11 — Other special kinds of company

182

 

Chapter 11

Other special kinds of company

Investment trusts’ and venture capital trusts’ creditor relationships

395     

Investment trusts: profits or losses of a capital nature

(1)   

Profits or losses of a capital nature arising to an investment trust from a

5

creditor relationship may not be brought into account as credits or debits for

the purposes of this Part.

(2)   

For the purposes of this section “profits or losses of a capital nature” means

profits or losses that—

(a)   

are accounted for through the capital column of the income statement

10

in accordance with the Statement of Recommended Practice, or

(b)   

would have been so accounted for if that Statement had been applied

correctly.

(3)   

“The Statement of Recommended Practice”, in relation to an accounting period

for which it is required or permitted to be used, means—

15

(a)   

the Statement of Recommended Practice relating to Investment Trust

Companies, issued by the Association of Investment Trust Companies

in January 2003, as from time to time modified, amended or revised, or

(b)   

any subsequent Statement of Recommended Practice relating to

investment trusts, as from time to time modified, amended or revised.

20

(4)   

The Treasury may by order amend the definition of “profits or losses of a

capital nature” in subsection (2), so far as it applies in relation to an investment

trust that prepares accounts in accordance with international accounting

standards.

(5)   

An order under subsection (4) may make—

25

(a)   

different provision for different cases, and

(b)   

incidental, supplemental, consequential and transitional provision and

savings.

396     

Venture capital trusts: profits or losses of a capital nature

(1)   

Profits or losses of a capital nature arising to a venture capital trust from a

30

creditor relationship may not be brought into account as credits or debits for

the purposes of this Part.

(2)   

For the purposes of this section “profits or losses of a capital nature” means

profits or losses that—

(a)   

are accounted for through the capital column of the income statement

35

in accordance with the Statement of Recommended Practice, or

(b)   

would have been so accounted for if the venture capital trust had been

an investment trust and that Statement had been applied correctly.

(3)   

In this section “the Statement of Recommended Practice” has the meaning

given in section 395(3) (investment trusts: profits or losses of a capital nature).

40

(4)   

The Treasury may by order amend the definition of “profits or losses of a

capital nature” in subsection (2), so far as it applies in relation to a venture

 
 

 
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