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Corporation Tax Bill


Corporation Tax Bill
Part 6 — Relationships treated as loan relationships etc
Chapter 3 — OEICs, unit trusts and offshore funds

234

 

The qualifying investments test

493     

The qualifying investments test

(1)   

An open-ended investment company, a unit trust scheme or an offshore fund

meets the qualifying investments test for the purposes of this Chapter if the

market value of the qualifying investments of the company, scheme or fund

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does not exceed 60% of the market value of all its investments.

(2)   

References in this section and sections 494 and 495 to investments of an open-

ended investment company are references—

(a)   

except where paragraph (b) applies, to the property subject to the

collective investment scheme constituted by the company, and

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(b)   

in a case where under section 468A(3) of ICTA part of an umbrella

company is regarded as an open-ended investment company, to such

of the property subject to the collective investment scheme constituted

by the umbrella company as forms part of the separate pool in question,

   

other than cash awaiting investment.

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(3)   

References in this section and sections 494 and 495 to investments of a unit trust

scheme are references to investments subject to the trusts of the scheme, other

than cash awaiting investment.

(4)   

References in this section and sections 494 and 495 to investments of an

offshore fund are references to assets of the fund, other than cash awaiting

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investment.

(5)   

In this section “collective investment scheme” has the meaning given by

section 235 of FISMA 2000.

(6)   

A person with rights in a part of an umbrella company which is regarded

under section 468A(3) of ICTA as an open-ended investment company is

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treated for the purposes of this section as not owning shares in the umbrella

company.

(7)   

For the meaning of references to investments subject to the trusts of the scheme

in the case of certain authorised unit trusts, see section 468(9) of ICTA

(umbrella schemes).

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494     

Meaning of “qualifying investments”

(1)   

In section 493 “qualifying investments”, in relation to an open-ended

investment company, a unit trust scheme or an offshore fund, means

investments of the company, scheme or fund of any of the following

descriptions—

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(a)   

money placed at interest,

(b)   

securities,

(c)   

shares in a building society,

(d)   

qualifying holdings in an open-ended investment company, a unit trust

scheme or an offshore fund,

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(e)   

alternative finance arrangements,

(f)   

derivative contracts whose underlying subject matter consists wholly

of any one or more of—

(i)   

the matters referred to in paragraphs (a) to (e) (other than

diminishing shared ownership arrangements), and

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Corporation Tax Bill
Part 6 — Relationships treated as loan relationships etc
Chapter 3 — OEICs, unit trusts and offshore funds

235

 

(ii)   

currency,

(g)   

contracts for differences whose underlying subject matter consists

wholly of any one or more of—

(i)   

interest rates,

(ii)   

creditworthiness, and

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(iii)   

currency, and

(h)   

derivative contracts not within paragraph (f) or (g) where there is a

hedging relationship between the contract and an asset within

paragraphs (a) to (d).

(2)   

In this section—

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“contract for differences” has the same meaning as in Part 7 (derivative

contracts) (see section 582),

“diminishing shared ownership arrangements” means arrangements to

which section 504 applies,

“hedging relationship” has the meaning given by section 496,

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“qualifying holding” has the meaning given by section 495(1),

“security” does not include shares in a company, and

“underlying subject matter” has the same meaning as in Part 7 (derivative

contracts) (see section 583).

495     

Qualifying holdings

20

(1)   

For the purposes of section 494(1)(d) a holding in an open-ended investment

company, a unit trust scheme or an offshore fund is a qualifying holding at any

time if—

(a)   

at that time, or

(b)   

at any other time in the relevant accounting period,

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the company, scheme or fund would itself fail to meet the qualifying

investments test, even on the assumption in subsection (2).

(2)   

The assumption is that investments of the company, scheme or fund are

qualifying investments in relation to the company, scheme or fund only if they

are within section 494(1)(a), (b), (c), (e), (f), (g) or (h).

30

(3)   

In this section “holding”—

(a)   

in relation to an open-ended investment company, means—

(i)   

except where sub-paragraph (ii) applies, shares in the company,

and

(ii)   

in a case where under section 468A(3) of ICTA part of an

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umbrella company is regarded as an open-ended investment

company, rights in the separate pool in question,

(b)   

in relation to a unit trust scheme, means an entitlement to a share in the

investments of the scheme, and

(c)   

in relation to an offshore fund, means—

40

(i)   

shares in any company by which the fund is constituted, or

(ii)   

an entitlement to a share in the investments of the fund.

(4)   

In this section “relevant accounting period” means the accounting period

referred to in section 490(1).

 
 

Corporation Tax Bill
Part 6 — Relationships treated as loan relationships etc
Chapter 4 — Building Societies

236

 

496     

Meaning of “hedging relationship”

(1)   

For the purposes of section 494, in relation to an open-ended investment

company, a unit trust scheme or an offshore fund, there is a hedging

relationship between a derivative contract (“the hedging instrument”) and an

asset (“the hedged item”) so far as condition A or B is met.

5

(2)   

Condition A is that the hedging instrument and the hedged item are

designated as a hedge by the company, scheme or fund.

(3)   

Condition B is that the hedging instrument is intended to act as a hedge of

exposure to changes in fair value of a hedged item which is—

(a)   

a recognised asset which could affect the total net return of the

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company, scheme or fund, or

(b)   

an identified part of such an asset which is attributable to a particular

risk.

(4)   

For the purposes of subsection (3) “the total net return” of a company, scheme

or fund means its total net return calculated—

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(a)   

in accordance with generally accepted accounting practice, or

(b)   

in the case of accounts prepared in a jurisdiction outside the United

Kingdom, in accordance with generally accepted accounting practice in

that jurisdiction.

Power to change investments that are qualifying investments

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497     

Power to change investments that are qualifying investments

(1)   

The Treasury may by order amend sections 493 to 496 so as to extend or restrict

the descriptions of investments of an open-ended investment company, a unit

trust scheme or an offshore fund that are qualifying investments for the

purposes of those provisions.

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(2)   

The order may make—

(a)   

different provision for different cases, and

(b)   

incidental, supplemental, consequential and transitional provision and

savings.

(3)   

In particular, the order may make such incidental modifications of section

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495(2) as the Treasury consider appropriate.

Chapter 4

Building Societies

498     

Building society dividends and interest

(1)   

This section deals with how building society dividends and interest are dealt

35

with for corporation tax purposes.

(2)   

Liability to pay building society interest or building society dividends is

treated for the purposes of Part 5 as a liability arising under a loan relationship

(so far it would not otherwise be such a liability).

 
 

Corporation Tax Bill
Part 6 — Relationships treated as loan relationships etc
Chapter 5 — Industrial and provident societies

237

 

(3)   

If building society interest or building society dividends are payable to a

company, they are treated as so payable as the result of a right arising under a

loan relationship of the company (so far as they would not otherwise be so

payable).

(4)   

Subsection (3) applies to interest paid under a certified SAYE savings

5

arrangement with a building society as if it were a dividend on a share in the

society.

(5)   

In this section—

“building society dividends” means dividends payable in respect of

shares in a building society,

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“building society interest” means interest payable in respect of shares in,

deposits with, or loans to, a building society,

“certified SAYE savings arrangement” has the meaning given by section

703 of ITTOIA 2005, and

“dividend” includes any distribution, however described.

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Chapter 5

Industrial and provident societies

499     

Industrial and provident society payments treated as interest under loan

relationship

(1)   

Any dividend, bonus or other sum payable to a shareholder in—

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(a)   

a registered industrial and provident society, or

(b)   

a UK agricultural or fishing co-operative,

   

is treated for corporation tax purposes as interest under a loan relationship of

the society or co-operative if it is payable by reference to the amount of the

shareholder’s holding in its share capital.

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(2)   

If subsection (1) applies—

(a)   

so far as the shareholder’s holding is held for the purposes of a trade,

the shareholder is treated for the purposes of section 297 as a party to

the loan relationship referred to in subsection (1) for that purpose, and

(b)   

so far as the holding is held for any other purpose, the shareholder is

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treated for the purposes of that section as a party to that loan

relationship for that other purpose.

(3)   

In subsection (1) “UK agricultural or fishing co-operative” means a co-

operative association—

(a)   

which is established in the United Kingdom and UK resident, and

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(b)   

whose primary object is assisting its members in—

(i)   

carrying on agricultural or horticultural businesses on land

occupied by them in the United Kingdom, or

(ii)   

carrying on businesses consisting in the catching or taking of

fish or shellfish.

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(4)   

In subsection (3) “co-operative association” means a body with a written

constitution from which the Secretary of State considers that it is in substance

a co-operative association.

 
 

Corporation Tax Bill
Part 6 — Relationships treated as loan relationships etc
Chapter 6 — Alternative finance arrangements

238

 

(5)   

For the purposes of subsection (4), the Secretary of State must have regard to

the way in which the body’s constitution provides for its income to be applied

for its members’ benefit and all other relevant provisions.

(6)   

In the application of subsections (4) and (5) in Northern Ireland for “the

Secretary of State” substitute “the Department of Agriculture and Rural

5

Development”.

500     

Exclusion of interest where failure to make return

(1)   

This section applies if for any accounting period a registered industrial and

provident society is obliged to make a return under section 887(2) of ITA 2007.

(2)   

If the society has not made the return within 3 months after the end of the

10

period, no interest paid by it in the period is to be brought into account for the

period for the purposes of Part 5.

(3)   

It does not matter for the purposes of subsection (2) whether the payment

would be interest apart from section 499.

Chapter 6

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Alternative finance arrangements

Introduction

501     

Introduction to Chapter

(1)   

This Chapter provides for alternative finance arrangements between

companies and financial institutions to be treated as loan relationships (see

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sections 509 and 510).

(2)   

In this Part “alternative finance arrangements” means—

(a)   

purchase and resale arrangements,

(b)   

diminishing shared ownership arrangements,

(c)   

deposit arrangements,

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(d)   

profit share agency arrangements, and

(e)   

investment bond arrangements.

(3)   

In this Chapter—

(a)   

“purchase and resale arrangements” means arrangements to which

section 503 applies,

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(b)   

“diminishing shared ownership arrangements” means arrangements to

which section 504 applies,

(c)   

“deposit arrangements” means arrangements to which section 505

applies,

(d)   

“profit share agency arrangements” means arrangements to which

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section 506 applies, and

(e)   

“investment bond arrangements” means arrangements to which

section 507 applies.

(4)   

For the meaning of “financial institution”, see section 502.

 
 

 
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