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502 | Meaning of “financial institution” |
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(1) | In this Chapter “financial institution” means— |
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(a) | a bank, as defined by section 840A of ICTA, |
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(b) | a building society within the meaning of the Building Societies Act 1986 |
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(c) | a wholly-owned subsidiary of a bank within paragraph (a) or a |
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building society within paragraph (b), |
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(d) | a person authorised by a licence under Part 3 of the Consumer Credit |
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Act 1974 (c. 39) to carry on a consumer credit business or consumer hire |
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business within the meaning of that Act, |
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(e) | a bond-issuer, within the meaning of section 507, but only in relation to |
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any bond assets which are rights under purchase and resale |
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arrangements or diminishing shared ownership arrangements, or |
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(f) | a person authorised in a jurisdiction outside the United Kingdom— |
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(i) | to receive deposits or other repayable funds from the public, |
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(ii) | to grant credits for its own account. |
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(2) | For the purposes of subsection (1)(c) a company is a wholly-owned subsidiary |
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of a bank or building society (“the parent”) if it has no members except— |
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(a) | the parent or persons acting on behalf of the parent, and |
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(b) | the parent’s wholly-owned subsidiaries or persons acting on behalf of |
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the parent’s wholly-owned subsidiaries. |
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Arrangements that are alternative finance arrangements |
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503 | Purchase and resale arrangements |
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(1) | This section applies to arrangements if— |
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(a) | they are entered into between two persons (“the first purchaser” and |
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“the second purchaser”), one or both of whom are financial institutions, |
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(b) | under the arrangements— |
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(i) | the first purchaser purchases an asset and sells it to the second |
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(ii) | the sale occurs immediately after the purchase or in the |
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circumstances mentioned in subsection (2), |
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(iii) | all or part of the second purchase price is not required to be paid |
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until a date later than that of the sale, |
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(iv) | the second purchase price exceeds the first purchase price, and |
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(v) | the excess equates, in substance, to the return on an investment |
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(2) | The circumstances are that— |
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(a) | the first purchaser is a financial institution, and |
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(b) | the asset referred to in subsection (1)(b)(i) was purchased by the first |
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purchaser for the purpose of entering into arrangements within this |
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“the first purchase price” means the amount paid by the first purchaser in |
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respect of the purchase, and |
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“the second purchase price” means the amount payable by the second |
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purchaser in respect of the sale. |
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(4) | This section is subject to section 508 (provision not at arm’s length: exclusion |
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of arrangements from this section and sections 504 to 507). |
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504 | Diminishing shared ownership arrangements |
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(1) | This section applies to arrangements if under them— |
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(a) | a financial institution (“the first owner”) acquires a beneficial interest in |
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(b) | another person (“the eventual owner”) also acquires a beneficial |
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(c) | the eventual owner is to make payments to the first owner amounting |
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in aggregate to the consideration paid for the acquisition of the first |
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owner’s beneficial interest (but subject to any adjustment required for |
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such a reduction as is mentioned in subsection (5)), |
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(d) | the eventual owner is to acquire the first owner’s beneficial interest |
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(whether or not in stages) as a result of those payments, |
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(e) | the eventual owner is to make other payments to the first owner |
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(whether under a lease forming part of the arrangements, or |
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(f) | the eventual owner has the exclusive right to occupy or otherwise to |
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(g) | the eventual owner is exclusively entitled to any income, profit or gain |
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arising from or attributable to the asset (including, in particular, an |
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(2) | For the purposes of subsection (1)(a) it does not matter if— |
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(a) | the first owner acquires its beneficial interest from the eventual owner, |
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(b) | the eventual owner, or another person who is not the first owner, also |
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has a beneficial interest in the asset, or |
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(c) | the first owner also has a legal interest in it. |
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(3) | Subsection (1)(f) does not prevent the eventual owner from granting an interest |
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or right in relation to the asset if the conditions in subsection (4) are met. |
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(4) | The conditions are that— |
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(ii) | a person controlled by the first owner, or |
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(iii) | a person controlled by a person who also controls the first |
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(b) | the grant is not required by the first owner or arrangements to which |
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the first owner is a party. |
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(5) | Subsection (1)(g) does not prevent the first owner from— |
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(a) | having responsibility for any reduction in the asset’s value, or |
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(b) | having a share in a loss arising out of any such reduction. |
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(6) | This section is subject to section 508 (provision not at arm’s length: exclusion |
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of arrangements from section 503, this section and sections 505 to 507). |
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(1) | This section applies to arrangements if under them— |
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(a) | a person (“the depositor”) deposits money with a financial institution, |
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(b) | the money, together with money deposited with the institution by |
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other persons, is used by it with a view to producing a profit, |
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(c) | from time to time the institution makes or credits a payment to the |
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depositor out of profit resulting from the use of the money, |
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(d) | the payment is in proportion to the amount deposited by the depositor, |
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(e) | the payments so made or credited by the institution equate, in |
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substance, to the return on an investment of money at interest. |
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(2) | This section is subject to section 508 (provision not at arm’s length: exclusion |
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of arrangements from sections 503 and 504, this section, and sections 506 and |
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506 | Profit share agency arrangements |
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(1) | This section applies to arrangements if under them— |
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(a) | a person (“the principal”) appoints a financial institution as agent, |
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(b) | the agent uses money provided by the principal with a view to |
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(c) | the principal is entitled, to a specified extent, to profits resulting from |
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(d) | the agent is entitled to any additional profits resulting from its use (and |
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may also be entitled to a fee paid by the principal), and |
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(e) | payments made because of the principal’s entitlement to profits equate, |
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in substance, to the return on an investment of money at interest. |
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(2) | This section is subject to section 508 (provision not at arm’s length: exclusion |
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of arrangements from sections 503 to 505, this section and section 507). |
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507 | Investment bond arrangements |
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(1) | This section applies to arrangements if— |
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(a) | they provide for one person (“the bond-holder”) to pay a sum of money |
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(“the capital”) to another (“the bond-issuer”), |
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(b) | they identify assets, or a class of assets, which the bond-issuer will |
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acquire for the purpose of generating income or gains directly or |
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indirectly (“the bond assets”), |
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(c) | they specify a period at the end of which they cease to have effect (“the |
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(d) | the bond-issuer undertakes under the arrangements— |
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(i) | to dispose at the end of the bond term of any bond assets which |
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are still in the bond-issuer’s possession, |
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(ii) | to make a repayment of the capital (“the redemption payment”) |
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to the bond-holder during or at the end of the bond-term |
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(whether or not in instalments), and |
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(iii) | to pay to the bond-holder other payments on one or more |
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occasions during or at the end of the bond term (“additional |
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(e) | the amount of the additional payments does not exceed an amount |
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which would be a reasonable commercial return on a loan of the capital, |
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(f) | under the arrangements the bond-issuer undertakes to arrange for the |
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management of the bond assets with a view to generating income |
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sufficient to pay the redemption payment and additional payments, |
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(g) | the bond-holder is able to transfer the rights under the arrangements to |
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another person (who becomes the bond-holder because of the transfer), |
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(h) | the arrangements are a listed security on a recognised stock exchange, |
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(i) | the arrangements are wholly or partly treated in accordance with |
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international accounting standards as a financial liability of the bond- |
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issuer, or would be if the bond-issuer applied those standards. |
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(2) | For the purposes of subsection (1)— |
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(a) | the bond-issuer may acquire bond assets before or after the |
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arrangements take effect, |
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(b) | the bond assets may be property of any kind, including rights in |
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relation to property owned by someone other than the bond-issuer, |
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(c) | the identification of the bond assets mentioned in subsection (1)(b) and |
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the undertakings mentioned in subsection (1)(d) and (f) may (but need |
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not) be described as, or accompanied by a document described as, a |
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(d) | a reference to the management of assets includes a reference to |
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(e) | the bond-holder may (but need not) be entitled under the arrangements |
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to terminate them, or participate in terminating them, before the end of |
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(f) | the amount of the additional payments may be— |
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(i) | fixed at the beginning of the bond term, |
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(ii) | determined wholly or partly by reference to the value of or |
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income generated by the bond assets, or |
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(iii) | determined in some other way, |
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(g) | if the amount of the additional payments is not fixed at the beginning |
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of the bond term, the reference in subsection (1)(e) to the amount of the |
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additional payments is a reference to the maximum amount of the |
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(h) | the amount of the redemption payment may (but need not) be subject |
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to reduction in the event of a fall in the value of the bond assets or in the |
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rate of income generated by them, and |
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(i) | entitlement to the redemption payment may (but need not) be capable |
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of being satisfied (whether or not at the option of the bond-issuer or the |
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bond-holder) by the issue or transfer of shares or other securities. |
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(3) | This section is subject to section 508. |
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508 | Provision not at arm’s length: exclusion of arrangements from sections 503 to |
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(1) | Arrangements to which this section applies are not— |
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(a) | purchase and resale arrangements, |
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(b) | diminishing shared ownership arrangements, |
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(c) | deposit arrangements, |
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(d) | profit share agency arrangements, or |
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(e) | investment bond arrangements. |
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(2) | This section applies to arrangements if— |
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(a) | apart from this section they would be alternative finance arrangements, |
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(b) | paragraph 1(2) of Schedule 28AA to ICTA (provision not at arm’s |
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length) requires the profits and losses of a person who is a party to the |
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arrangements to be calculated for tax purposes as if the arm’s length |
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provision referred to in paragraph 1(2)(a) of that Schedule had been |
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made or imposed, rather than in accordance with the arrangements, |
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(c) | any person who is an affected person for the purposes of that Schedule |
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(“the affected person”) is entitled to— |
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(i) | relevant return in relation to the arrangements, or |
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(ii) | an amount representing relevant return in relation to them, and |
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(d) | the affected person is not subject— |
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(i) | to income tax or corporation tax, or |
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(ii) | to any corresponding tax under the law of a territory outside the |
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| on the relevant return or the amount representing it. |
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(3) | In this section “relevant return”, in relation to arrangements, means any |
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amount which would be alternative finance return if the arrangements were |
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alternative finance arrangements. |
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(4) | For the meaning of “alternative finance return”, see sections 511 to 513. |
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Treatment as loan relationships |
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509 | Application of Part 5: general |
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(1) | Part 5 applies in relation to alternative finance arrangements to which a |
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company (“A”) is a party as if the arrangements were a loan relationship to |
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(2) | Accordingly, references in the Corporation Tax Acts to a loan relationship |
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include references to such alternative finance arrangements. |
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(3) | Section 510 makes further provision about the way in which Part 5 applies to |
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particular descriptions of alternative finance arrangements. |
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510 | Application of Part 5 to particular alternative finance arrangements |
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(1) | In the case of purchase and resale arrangements, Part 5 applies in relation to A |
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(a) | the first purchase price were the amount of a loan made by the first |
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purchaser to the second purchaser, and |
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(b) | alternative finance return payable under the arrangements were |
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interest payable on the loan. |
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(2) | In the case of diminishing shared ownership arrangements, Part 5 applies in |
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(a) | the consideration paid by the first owner for the acquisition of the first |
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owner’s beneficial interest (“the acquisition consideration”) were the |
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amount of a loan made by A to the eventual owner, and |
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(b) | alternative finance return payable under the arrangements were |
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interest payable on the loan. |
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(3) | In the case of deposit arrangements, Part 5 applies in relation to A as if— |
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(a) | any amount deposited under the arrangements were the amount of a |
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loan made by the depositor to the financial institution, and |
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(b) | alternative finance return payable under them were interest on the |
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(4) | In the case of profit share agency arrangements, Part 5 applies in relation to A |
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(a) | any amount provided under the arrangements were the amount of a |
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loan made by the principal to the agent, and |
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(b) | alternative finance return payable under them were interest on the |
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(5) | In the case of investment bond arrangements, Part 5 applies in relation to A as |
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if alternative finance return payable to or by A under them were interest |
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payable under the loan relationship. |
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“the depositor” has the same meaning as in section 505 (see subsection (1) |
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“the eventual owner” has the same meaning as in section 504 (see |
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subsection (1) of that section), |
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“the first owner” has the same meaning as in section 504 (see subsection |
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“the first purchaser” has the same meaning as in section 503 (see |
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subsection (1) of that section), |
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“the first purchase price” has the same meaning as in section 503 (see |
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subsection (3) of that section), |
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“the principal” has the same meaning as in section 506 (see subsection (1) |
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“the second purchaser” has the same meaning as in section 503 (see |
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subsection (1) of that section). |
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(7) | For the meaning of “alternative finance return”, see sections 511 to 513. |
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Meaning of “alternative finance return” |
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511 | Purchase and resale arrangements |
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(1) | In the case of purchase and resale arrangements, so much of the second |
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purchase price as is specified under the following provisions of this section is |
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alternative finance return for the purposes of this Part. |
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(2) | If under the arrangements the whole of the second purchase price is paid on |
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one day, the alternative finance return equals the amount by which the second |
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purchase price exceeds the first purchase price. |
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(3) | If under the arrangements the second purchase price is paid by instalments, the |
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alternative finance return in each instalment equals the appropriate amount. |
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(4) | The appropriate amount is an amount equal to the interest which would have |
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been included in the instalment on the assumptions in subsection (5). |
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(5) | The assumptions are that— |
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(a) | interest is payable on a loan by the first purchaser to the second |
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purchaser of an amount equal to the first purchase price, |
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(b) | the total interest payable on the loan is equal to the amount by which |
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the second purchase price exceeds the first purchase price, |
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(c) | the instalment is a part repayment of the principal of the loan with |
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(d) | the loan is made on arm’s length terms and accounted for under |
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generally accepted accounting practice. |
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(6) | In this section expressions used in section 503 have the same meaning as in that |
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512 | Diminishing shared ownership arrangements |
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(1) | In the case of diminishing shared ownership arrangements, payments by the |
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eventual owner under the arrangements are alternative finance return for the |
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purposes of this Part, except so far subsection (2) or (3) applies to them. |
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(2) | This subsection applies to the payments so far as they amount to payments of |
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the kind described in section 504(1)(c) (payments to be made by the eventual |
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owner to the institution, amounting to the consideration paid for the |
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acquisition of the institution’s beneficial interest). |
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(3) | This subsection applies to the payments so far as they amount to payments in |
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respect of any arrangement fee or legal or other expenses which the eventual |
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owner is required under the arrangements to pay. |
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(4) | In this section “the eventual owner” has the same meaning as in section 504. |
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(1) | In the case of deposit arrangements, amounts paid or credited as mentioned in |
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section 505(1)(c) by a financial institution under the arrangements (payments |
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to depositor out of profits resulting from use of money) are alternative finance |
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return for the purposes of this Part. |
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(2) | In the case of profit share agency arrangements, amounts paid or credited by a |
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financial institution in accordance with such an entitlement as is mentioned in |
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section 506(1)(c) (principal’s entitlement to profits under the arrangements) are |
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alternative finance return for the purposes of this Part. |
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(3) | In the case of investment bond arrangements, the additional payments under |
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the arrangements are alternative finance return for the purposes of this Part. |
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(4) | In subsection (3) “additional payments” has the same meaning as in section 507 |
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(see subsection (1)(d)(iii) of that section). |
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Treatment for other tax purposes |
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514 | Exclusion of alternative finance return from consideration for sale of assets |
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(1) | If under purchase and resale arrangements an asset is sold by one party to the |
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arrangements to the other party, the alternative finance return is excluded in |
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determining the consideration for the sale and purchase of the asset for the |
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purposes of the Corporation Tax Acts (apart from section 503). |
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