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Deeply discounted securities: connected companies and close companies |
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(1) | The following sections deal with deeply discounted securities— |
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(a) | sections 407 and 408 (deeply discounted securities where companies |
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(b) | sections 409 to 411 (deeply discounted securities of close companies), |
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(c) | section 412 (persons indirectly standing in the position of creditor). |
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(2) | In this section and sections 407 to 412 “deeply discounted security” has the |
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same meaning as in Chapter 8 of Part 4 of ITTOIA 2005 (profits from deeply |
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discounted securities) (see section 430 of that Act). |
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(3) | In sections 407 to 412 “the discount” means the difference between— |
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(a) | the issue price of the security, and |
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(b) | the amount payable on redemption. |
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(4) | The provisions of Chapter 8 of Part 4 of ITTOIA 2005 apply for the purposes of |
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this section and sections 407 to 412 for determining the difference between the |
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issue price of a security and the amount payable on redemption as they apply |
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for the purposes of section 430 of that Act. |
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407 | Postponement until redemption of debits for connected companies’ deeply |
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(1) | This section applies as respects any accounting period (“the relevant period”) |
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(a) | a debtor relationship of a company (“the issuing company”) is |
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represented by a deeply discounted security issued by it, |
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(b) | at any time in the relevant period another company stands in the |
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position of a creditor as respects the security, |
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(c) | there is a connection between those companies for the relevant period, |
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(d) | the period is not the accounting period in which the security is |
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(e) | credits representing the full amount of the discount which is referable |
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to the relevant period are not brought into account for the purposes of |
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this Part in respect of the corresponding creditor relationship for any |
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accounting period (see section 412(2)). |
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(2) | The debits to be brought into account for the purposes of this Part in respect of |
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the loan relationship by the issuing company are to be adjusted so that any |
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debit relating to the amount of the discount which is referable to the relevant |
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(a) | is not brought into account for the relevant period, but |
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(b) | is brought into account for the accounting period in which the security |
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(3) | The amount of the discount which is referable to the relevant period is the |
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amount of it which would be brought into account for that period apart from |
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(4) | For the meaning of “standing in the position of a creditor” and the meaning of |
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“corresponding creditor relationship” where a company indirectly stands in |
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that position, see section 412. |
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(5) | Whether there is a connection between companies for the purposes of this |
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section is determined in accordance with section 408. |
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408 | Companies connected for section 407 |
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(1) | For the purposes of section 407 there is a connection between two companies |
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for an accounting period if condition A or B is met. |
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(2) | Condition A is that there is a time in the period when one of the companies has |
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control of, or a major interest in, the other. |
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(3) | Condition B is that there is a time in the period when both companies are under |
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the control of the same person. |
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(4) | Section 472 (meaning of “control”) applies for the purposes of this section. |
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(5) | For the meaning of “major interest”, see section 473. |
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409 | Postponement until redemption of debits for close companies’ deeply |
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(1) | This section applies for any accounting period (“the relevant period”) if— |
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(a) | a debtor relationship of a close company (“the issuing company”) is |
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represented by a deeply discounted security it has issued, |
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(b) | at any time in the period there is a person who stands in the position of |
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a creditor as respects the security and is— |
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(i) | a participator in the issuing company, |
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(ii) | an associate of such a participator, |
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(iii) | a company of which such a participator has control, |
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(iv) | a person who controls a company which is such a participator, |
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(v) | an associate of a person within sub-paragraph (iv), or |
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(vi) | a company controlled by a person within sub-paragraph (iv), |
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(c) | the period is not the accounting period in which the security is |
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(d) | this section is not disapplied by section 410. |
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(2) | The debits which are to be brought into account for the purposes of this Part by |
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the issuing company in respect of the loan relationship are to be adjusted so |
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that debits relating to the amount of the discount that is referable to the |
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relevant period (“relevant debits”)— |
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(a) | are not brought into account for the relevant period, but |
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(b) | are brought into account for the accounting period in which the |
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(3) | If there is a person within subsection (1)(b) for only part of the relevant period, |
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subsection (2) applies only to the appropriate proportion of the relevant debits. |
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(4) | In subsection (3) “the appropriate proportion” means the proportion that the |
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part of the relevant period for which there is such a person bears to the whole |
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(5) | The amount of the discount that is referable to the relevant period is the |
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amount of it which would be brought into account for the purposes of this Part |
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for the relevant period in the case of the issuing company, apart from |
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(6) | For the meaning of other expressions used in this section, see— |
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(a) | section 411 (interpretation of this section), and |
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(b) | section 412 (persons indirectly standing in the position of creditor). |
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410 | Exceptions to section 409 |
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(1) | Section 409 does not apply for any accounting period (“the relevant period”) if |
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any of the following conditions are met— |
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(a) | the corresponding creditor relationship conditions (see subsection (2)), |
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(b) | the CIS-based close company conditions (see subsection (3)), or |
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(c) | the CIS limited partnership conditions (see subsection (4)). |
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(2) | The corresponding creditor relationship conditions are that— |
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(a) | at all times in the relevant period when there is a person within section |
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409(1)(b), that person is a company, and |
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(b) | credits representing the full amount of the discount that is referable to |
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the period are brought into account for the purposes of this Part for any |
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accounting period in respect of the corresponding creditor relationship |
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(3) | The CIS-based close company conditions are that— |
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(a) | the issuing company is a CIS-based close company, |
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(b) | at no time in the relevant period when there is a person within section |
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409(1)(b) is that person resident in a non-qualifying territory, and |
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(c) | the issuing company is a small or medium-sized enterprise for the |
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(4) | The CIS limited partnership conditions are that— |
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(a) | the debt is one which is owed to, or to persons acting for, a CIS limited |
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(b) | no member of that partnership is resident in a non-qualifying territory |
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at any time in the relevant period when there is a person within section |
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(c) | the issuing company has received written notice from the partnership |
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containing information from which it appears that the condition in |
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paragraph (b) is met, and |
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(d) | the issuing company is a small or medium-sized enterprise for the |
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“CIS-based close company” means a company that would not be a close |
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company apart from the rights and powers of one or more partners in |
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a CIS limited partnership being attributed to another of the partners |
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under section 416(6) of ICTA because of section 417(3)(a) of that Act, |
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“CIS limited partnership” means a limited partnership— |
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(a) | which is a collective investment scheme, or |
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(b) | which would be a collective investment scheme if it were not a |
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“issuing company” has the same meaning as in section 409 (see subsection |
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“non-qualifying territory” has the meaning given by paragraph 5E of |
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Schedule 28AA to ICTA (provision not at arm’s length), |
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“resident” has the meaning given by paragraph 5B(6) of that Schedule, |
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“small or medium-sized enterprise” has the meaning given by paragraph |
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(6) | For the meaning of “corresponding creditor relationship”, see section 412 |
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(persons indirectly standing in the position of creditor). |
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411 | Interpretation of section 409 |
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(1) | Section 472 (meaning of “control”) applies for the purposes of section 409 and |
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(2) | A person who is a participator in a company which controls another company |
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is treated for the purposes of section 409 as being a participator in that other |
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(3) | Subject to that, in section 409 and this section “participator”, in relation to a |
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company, means a person who is a participator in the company for the |
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purposes of Part 11 of ICTA because of section 417 of that Act, but not a person |
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who is a participator for those purposes just because of being a loan creditor of |
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(4) | In determining whether a person who carries on the trade of banking is a |
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participator in a company for the purposes of section 409 and this section, |
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securities of the company acquired by the person in the ordinary course of the |
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person’s business are ignored. |
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412 | Persons indirectly standing in the position of creditor |
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(1) | For the purposes of sections 407(1)(b) and 409 a person is treated as standing in |
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the position of a creditor if the person indirectly stands in that position by |
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reference to a series of loan relationships or relevant money debts. |
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(2) | If a company (“C”) is so treated for the purposes of section 407(1)(b), the |
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reference in section 407(1)(e) to the corresponding creditor relationship is a |
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reference to C’s creditor relationship. |
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(3) | If a person (“P”) is so treated for the purposes of section 409, the reference in |
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section 410(2)(b) to the corresponding creditor relationship is a reference to P’s |
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(4) | In subsection (1) “relevant money debt” means a money debt which would be |
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a loan relationship if a company directly stood in the position of creditor or |
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