Corporation Tax Bill

House of Commons

Session 2008 - 09
Internet Publications
Other Bills before Parliament

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
30
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
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(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”).
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(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).
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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—
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(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.
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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.
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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