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 18 — General and supplementary provisions
221

469
Creditors who are financial traders
(1)
This section sets out the conditions referred to in section 468(1)(a).
(2)
Condition A is that the creditor disposes of or acquires assets representing
creditor relationships in the course of carrying on any activities forming an
integral part of a trade carried on by it in the accounting period.
5
(3)
Condition B is that the asset representing the creditor relationship was
acquired in the course of those activities.
(4)
Condition C is that that asset—
(a)
is listed on a recognised stock exchange at the end of that period, or
(b)
is a security the redemption of which must occur within 12 months of
10
its issue.
(5)
Condition D is that there is a time in that period when assets of the same kind
as the asset representing the creditor relationship are beneficially owned by
persons other than the creditor.
(6)
Condition E is that in that period there is not more than 3 months in total
15
during which the equivalent of at least 30% of the assets of that kind is
beneficially owned by connected companies.
(7)
Section 470 supplements this section.
470
Section 469: supplementary provisions
(1)
For the purposes of conditions D and E in section 469 assets are taken to be of
20
the same kind if they—
(a)
are treated as being of the same kind by the practice of any recognised
stock exchange, or
(b)
would be so treated if dealt with on such an exchange.
(2)
For the purposes of condition E in section 469 an asset is beneficially owned by
25
a connected company if there is a connection between—
(a)
the company which beneficially owns it, and
(b)
a company which stands in the position of a debtor as respects the
money debt by reference to which any loan relationship represented by
that asset exists.
30
(3)
Whether there is a connection for the purposes of subsection (2) at any time in
an accounting period (“the relevant time”) is determined in accordance with
section 466(2), (3), (5) and (6)—
(a)
applying the conditions in section 466(2) only at the relevant time, and
(b)
ignoring section 468.
35
471
Creditors who are insurance companies carrying on BLAGAB
(1)
This section sets out the conditions referred to section 468(1)(b)).
(2)
Condition A is that the creditor is an insurance company carrying on basic life
assurance and general annuity business in the accounting period.
(3)
Condition B is that the asset representing the creditor relationship is linked for
40
that period to that business.

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 18 — General and supplementary provisions
222

(4)
Condition C is that conditions C, D and E in section 469 are met in relation to
that asset.
472
Meaning of “control”
(1)
This section has effect for the purposes of any provisions of this Part which
apply this section (but this does not affect the application of section 1316(2)
5
(meaning of “control”) for other purposes of this Part).
(2)
For those purposes “control”, in relation to a company, means the power of a
person to secure that the affairs of the company are conducted in accordance
with the person’s wishes—
(a)
by means of the holding of shares or the possession of voting power in
10
or in relation to the company or any other company, or
(b)
as a result of any powers conferred by the articles of association or other
document regulating the company or any other company.
(3)
Trading shares held by a company and any voting power or other powers
arising from such shares are ignored for the purposes of this section.
15
(4)
For the purposes of subsection (3) shares held by a company are trading shares
if—
(a)
a profit on a sale of the shares would be treated as a trading receipt of a
trade carried on by the company, and
(b)
the shares are not assets of an insurance company’s long-term
20
insurance fund.
(5)
Subsection (6) applies in the case of any firm to which section 1259 (calculation
of firm’s profits and losses) applies.
(6)
For any accounting period of the firm, property, rights or powers held or
exercisable for its purposes are treated for the purposes of this section as if—
25
(a)
the property, rights or powers had been apportioned between, and
were held or exercisable by, the partners severally, and
(b)
the apportionment had been in the same shares as those in which the
profit or loss of the period would be apportioned between the partners
in accordance with the firm’s profit-sharing arrangements.
30
(7)
In subsection (6) the references to partners do not include references to the
general partner of a limited partnership which is a collective investment
scheme.
473
Meaning of “major interest”
(1)
In this Part references to a company (“A”) having a major interest in another
35
company (“B”) are to be read as follows.
(2)
A has a major interest in B at any time if at that time—
(a)
A and one other person (“C”), taken together, have control of B, and
(b)
A and C each have interests, rights and powers representing at least
40% of the holdings, rights and powers as a result of which A and C are
40
taken to have control of B.
(3)
The reference in subsection (2)(b) to interests, rights and powers does not
include interests, rights or powers arising from shares held by a company if—

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 18 — General and supplementary provisions
223

(a)
a profit on a sale of the shares would be treated as a trading receipt of a
trade carried on by the company, and
(b)
the shares are not assets of an insurance company’s long-term
insurance fund.
(4)
Section 474 makes provision about how this section operates where connected
5
companies or partnerships are involved.
(5)
For the purposes of this section and section 474, a company (“D”) is connected
with another company (“E”) if—
(a)
D controls E,
(b)
E controls D, or
10
(c)
D and E are both controlled by the same company.
(6)
Section 472 (meaning of “control”) applies for the purposes of this section and
section 474.
(7)
If two or more persons taken together have the power mentioned in section
472(2) (as read with the other provisions of section 472) as respects the affairs
15
of a company (“B”), they are taken for the purposes of subsection (2)(a) to have
control of B.
474
Treatment of connected companies and partnerships for section 473
(1)
For the purposes of section 473(2), all the interests, rights and powers of any
company connected with another company are attributed to the other
20
company before determining any question—
(a)
whether two persons taken together have control of a company at any
time, or
(b)
whether a person has at any time interests, rights and powers
representing at least 40% of the holdings, rights and powers in respect
25
of a company.
(2)
If section 1259 (calculation of firm’s profits and losses) applies, any property,
rights or powers held or exercisable for the purposes of the firm are treated for
the purposes of section 473, as respects any time in an accounting period of the
firm, on the basis of the assumptions in subsection (3).
30
(3)
The assumptions are that—
(a)
the property, rights or powers had been apportioned between, and
were held or exercisable by, the partners in the firm severally, and
(b)
the apportionment was in the same shares as those in which the profit
or loss of the accounting period would be apportioned between the
35
partners under the firm’s profit-sharing arrangements.
(4)
Subsection (5) applies if—
(a)
a trade or business is carried on by a firm, and
(b)
the firm stands in the position of a creditor or debtor as respects a
money debt.
40
(5)
The questions in subsection (6) are to be determined as if each of the partners
in the firm separately, instead of the firm, stood in the position of a creditor or,
as the case may be, a debtor as respects the money debt to the extent of that
partner’s appropriate share (see subsection (8)).
(6)
The questions are—
45

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 18 — General and supplementary provisions
224

(a)
whether a company has a major interest in another company for an
accounting period in the case of a loan relationship, or
(b)
how far any amount is treated under this Part in any particular way as
a result of a company having or, as the case may be, not having such a
major interest.
5
(7)
The references to partners in subsections (3) and (5) do not include a reference
to the general partner of a limited partnership which is a collective investment
scheme.
(8)
For the purposes of subsection (5), a partner’s “appropriate share” is the same
share as the partner’s share under the firm’s profit-sharing arrangements of
10
any profit or loss calculated in accordance with section 1259 for the accounting
period in question.
475
Meaning of expressions relating to exchange gains and losses
(1)
References in this Part to exchange gains or exchange losses, in relation to a
company, are references respectively to—
15
(a)
profits or gains which arise as a result of comparing at different times
the expression in one currency of the whole or some part of the
valuation put by the company in another currency on an asset or
liability of the company, or
(b)
losses which so arise.
20
(2)
If the result of such a comparison is that neither an exchange gain nor an
exchange loss arises, for the purposes of this Part an exchange gain of nil is
taken to arise in the case of that comparison.
(3)
The Treasury may make provision by regulations as to the way in which
exchange gains or losses are to be calculated for the purposes of this section in
25
a case where fair value accounting is used by the company.
(4)
The regulations may be made so as to apply to periods of account beginning
before the regulations are made, but not earlier than the beginning of the
calendar year in which they are made.
(5)
Any reference in this Part to an exchange gain or loss from a loan relationship
30
of a company is a reference to an exchange gain or loss arising to a company in
relation to an asset or liability representing a loan relationship of the company.
Other general definitions
476
Other definitions
(1)
In this Part—
35
“alternative finance arrangements” has the meaning given in section
501(2),
“associate” has the meaning given by section 417(3) of ICTA,
“collective investment scheme” has the meaning given by section 235 of
FISMA 2000,
40
“debt” includes a debt the amount of which is to be ascertained by
reference to matters which vary from time to time,
“equity instrument” has the meaning it has for accounting purposes,
“gilt-edged securities” means any securities which—

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 18 — General and supplementary provisions
225

(a)
are gilt-edged securities for the purposes of TCGA 1992 (see
Schedule 9 to that Act), or
(b)
will be such securities on the making of any order under
paragraph 1 of Schedule 9 to that Act the making of which is
anticipated in the prospectus under which they are issued,
5
“impairment” includes uncollectability,
“impairment loss” means a debit in respect of the impairment of a
financial asset,
“income statement” has the meaning it has for accounting purposes,
“international organisation” has the meaning given in subsection (2) (and
10
also see subsection (3)),
“loan” includes any advance of money and related expressions are to be
read accordingly,
“non-trading credit” and “non-trading debit” are to be read in accordance
with section 301 (but also see sections 330 and 482(1)),
15
“profit-sharing arrangements”, in relation to a firm, has the meaning
given in section 1262(4) (allocation of firm’s profits or losses between
partners),
“share”, in relation to a company, means any share in the company under
which an entitlement to receive distributions may arise (except as
20
provided in section 522(6)), but does not include a share in a building
society,
“statement of changes in equity” has the meaning it has for accounting
purposes,
“statement of comprehensive income” has the meaning it has for
25
accounting purposes,
“statement of income and retained earnings” has the meaning it has for
accounting purposes,
“statement of recognised income and expense” has the meaning it has for
accounting purposes,
30
“statement of total recognised gains and losses” has the meaning it has for
accounting purposes,
“tax advantage” has the meaning given by section 840ZA of ICTA,
“this Part” is to be read in accordance with section 294(2), and
“trade” and “purposes of trade” are to be read in accordance with section
35
298.
(2)
In this Part “international organisation” means an organisation of which—
(a)
two or more sovereign powers are members, or
(b)
the governments of two or more sovereign powers are members.
(3)
If, in any proceedings, any question arises whether a person is an international
40
organisation for the purposes of any provision of this Part, a certificate issued
by or under the authority of the Secretary of State stating any fact relevant to
that question is conclusive evidence of that fact.

Corporation Tax Bill
Part 6 — Relationships treated as loan relationships etc
Chapter 2 — Relevant non-lending relationships
226

Part 6
Relationships treated as loan relationships etc
Chapter 1
Introduction
477
Overview of Part
5
(1)
This Part deals with matters treated for some or all purposes as loan
relationships or rights, payments or profits under loan relationships.
(2)
See, in particular—
(a)
Chapter 2 (relevant non-lending relationships),
(b)
Chapter 3 (OEICs, unit trusts and offshore funds),
10
(c)
Chapter 4 (building societies),
(d)
Chapter 5 (industrial and provident societies),
(e)
Chapter 6 (alternative finance arrangements),
(f)
Chapter 7 (shares with guaranteed returns etc),
(g)
Chapter 8 (returns from partnerships),
15
(h)
Chapter 9 (manufactured interest etc),
(i)
Chapter 10 (repos), and
(j)
Chapter 11 (investment life insurance contracts).
(3)
For the relationship of this Part to other Parts of this Act, see—
(a)
section 294(2) (which provides for references to Part 5 to be read as
20
including references to this Part), and
(b)
sections 464 and 465 (relationship of Part 5 and this Part to other
provisions).
Chapter 2
Relevant non-lending relationships
25
Introduction: meaning of “relevant non-lending relationship” etc
478
Relevant non-lending relationships: introduction
(1)
This Chapter provides for Part 5 to apply to relevant non-lending relationships
in relation to some matters as it applies to loan relationships (see section 481).
(2)
For the meaning of “relevant non-lending relationship”, see—
30
(a)
section 479 (relevant non-lending relationships not involving
discounts), and
(b)
section 480 (relevant non-lending relationships involving discounts).
(3)
For provisions extending the meaning of “money debt” and “interest” in this
Chapter, see—
35
(a)
section 483 (exchange gains and losses: amounts treated as money
debts), and

Corporation Tax Bill
Part 6 — Relationships treated as loan relationships etc
Chapter 2 — Relevant non-lending relationships
227

(b)
section 484 (provision not at arm’s length: meaning of “interest” and
“money debt”).
(4)
For exclusions from this Chapter, see—
(a)
section 485 (exclusion of debts where profits or losses within Part 7 or
8), and
5
(b)
section 486 (exclusion of exchange gains and losses in respect of tax
debts etc).
479
Relevant non-lending relationships not involving discounts
(1)
A company has a relevant non-lending relationship if—
(a)
the company stands, or has stood, in the position of a creditor or debtor
10
in relation to a money debt,
(b)
the money debt did not arise from a transaction for the lending of
money (and so, because of section 302(1)(b), there is no loan
relationship), and
(c)
the money debt is one of the kinds mentioned in subsection (2).
15
(2)
The kinds of debt are—
(a)
a debt on which interest is payable to or by the company,
(b)
a debt in relation to which exchange gains or losses arise to the
company, and
(c)
a debt in relation to which an impairment loss (or credit in respect of
20
the reversal of an impairment loss) arises to the company in respect of
an unpaid (or previously unpaid) business payment.
(3)
In subsection (2) “business payment” means a payment which, if it were paid,
would fall to be brought into account for corporation tax purposes as a receipt
of a trade, UK property business or overseas property business carried on by
25
the company.
(4)
For the meaning of “money debt” and “interest” in this Chapter, see—
(a)
section 483 (exchange gains and losses: amounts treated as money
debts) and
(b)
section 484 (provision not at arm’s length: meaning of “interest” and
30
“money debt”).
(5)
For the meaning of “exchange gains or losses”, see section 475.
(6)
This section is subject to section 485 (exclusion of debts where profits or losses
within Part 7 or 8).
480
Relevant non-lending relationships involving discounts
35
(1)
A company has a relevant non-lending relationship if—
(a)
the company stands in the position of creditor in relation to a money
debt,
(b)
the money debt did not arise from a transaction for the lending of
money (and so, because of section 302(1)(b), there is no loan
40
relationship),
(c)
the money debt is one from which a discount arises to the company,
(d)
the discount does not fall to be brought into account under section 509
(treatment of alternative finance arrangements as loan relationships