Corporation Tax Bill

House of Commons

Session 2008 - 09
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Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 6 — Relationships treated as loan relationships etc
Chapter 6 — Alternative finance arrangements
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(2)
If under diminishing shared ownership arrangements an asset is sold by one
party to the arrangements to the other party, the alternative finance return is
excluded in determining the consideration for the sale and purchase of the
asset for the purposes of the Corporation Tax Acts (apart from section 504).
(3)
If under investment bond 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
determining the consideration for the sale and purchase of the asset for the
purposes of the Corporation Tax Acts (apart from section 507).
(4)
Subsections (1) to (3) do not affect the operation of any provision of the
Corporation Tax Acts which provides that the consideration for a sale or
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purchase is taken for any purpose to be an amount other than the actual
consideration.
515
Diminishing shared ownership arrangements not partnerships
Diminishing shared ownership arrangements are not treated as a partnership
for the purposes of the Corporation Tax Acts.
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516
Treatment of principal under profit sharing agency arrangements
(1)
The principal under profit sharing agency arrangements is not treated for the
purposes of the Corporation Tax Acts as entitled to profits to which the agent
is entitled in accordance with section 506(1)(d).
(2)
And the agent under such arrangements is treated for those purposes as
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entitled to those profits and the profits specified in section 506(1)(c).
(3)
In this section “the principal” and “the agent” are to be read in accordance with
section 506.
517
Treatment of bond-holder under investment bond arrangements
(1)
This section applies for the purposes of the Corporation Tax Acts and
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irrespective of the position for other purposes.
(2)
The bond-holder under investment bond arrangements is not treated as having
a legal or beneficial interest in the bond assets.
(3)
The bond-issuer under such arrangements is not treated as a trustee of the
bond assets.
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(4)
Profits accruing to the bond-issuer in connection with the bond assets are
profits of the bond-issuer and not of the bond-holder (and do not arise to the
bond-issuer in a fiduciary or representative capacity).
(5)
Payments made by the bond-issuer by way of redemption payment or
additional payment are not made in a fiduciary or representative capacity.
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(6)
The bond-holder is not entitled to relief for capital expenditure in connection
with the bond assets.
(7)
Expressions used in this section have the same meaning as in section 507.

Corporation Tax Bill
Part 6 — Relationships treated as loan relationships etc
Chapter 6 — Alternative finance arrangements
247

518
Investment bond arrangements: treatment as securities
(1)
Investment bond arrangements are securities for the purposes of the
Corporation Tax Acts.
(2)
For those purposes—
(a)
a reference in an enactment to redemption is to be taken as a reference
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to making the redemption payment, and
(b)
a reference in an enactment to interest is to be taken as a reference to
alternative finance return.
(3)
In subsection (2) “the redemption payment” has the same meaning as in section
507 (see subsection (1)(d)(ii) of that section).
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519
Investment bond arrangements: other provisions
(1)
A bond-issuer is not a securitisation company for the purposes of section 83 of
FA 2005 (application of accounting standards to securitisation companies)
unless it is one as a result of arrangements which are not investment bond
arrangements.
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(2)
For the purposes of section 417 of ICTA (close companies)—
(a)
a bond-holder is a loan creditor in respect of the bond-issuer, and
(b)
investment bond arrangements must be ignored in the application of
section 417(1)(d) of that Act.
(3)
For the purposes of Schedule 18 to ICTA (group relief)—
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(a)
a bond-holder is a loan creditor in respect of the bond-issuer, and
(b)
paragraph 1(5)(b) of that Schedule must be ignored in determining
whether a person is an equity holder as a result of investment bond
arrangements.
520
Provision not at arm’s length: non-deductibility of relevant return
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(1)
This section applies if arrangements to which section 508 (provision not at
arm’s length: exclusion of arrangements from sections 503 to 507) applies
would, but for that section, be alternative finance arrangements.
(2)
A company paying relevant return under the arrangements is not entitled to—
(a)
any deduction in calculating profits or gains for corporation tax
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purposes, or
(b)
any deduction against total profits,

in respect of the relevant return.
(3)
In this section “relevant return” has the same meaning as in section 508 (see
subsection (3) of that section).
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Power to extend this Chapter to other arrangements
521
Power to extend this Chapter to other arrangements
(1)
The Treasury may by order amend the alternative finance provisions.
(2)
The amendments which may be made by such an order include—

Corporation Tax Bill
Part 6 — Relationships treated as loan relationships etc
Chapter 7 — Shares with guaranteed returns etc
248

(a)
the variation of provision already included in the alternative finance
provisions, and
(b)
the introduction into those provisions of new provision relating to
alternative finance arrangements.
(3)
In this section “alternative finance arrangements” means arrangements which
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in the Treasury’s opinion—
(a)
equate in substance to a loan, deposit or other transaction of a kind that
generally involves the payment of interest, but
(b)
achieve a similar effect without including provision for the payment of
interest.
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(4)
An order under subsection (1) may, in particular—
(a)
make provision of a kind similar to provision already made by the
alternative finance provisions,
(b)
make other provision about the treatment for the purposes of the
Corporation Tax Acts of arrangements to which the order applies,
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(c)
make provision generally or only in relation to specified cases or
circumstances,
(d)
make different provision for different cases or circumstances, and
(e)
make incidental, supplemental, consequential and transitional
provision and savings.
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(5)
An order making consequential provision under subsection (4)(e) may, in
particular, include provision amending a provision of the Tax Acts.
(6)
In this section “the alternative finance provisions” means—
(a)
this Chapter,
(b)
section 209(6A) of ICTA (meaning of distribution),
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(c)
section 411ZA of ICTA (no relief where deduction of relevant return
under alternative finance arrangements disallowed), and
(d)
section 151F of TCGA 1992 (treatment of alternative finance
arrangements).
Chapter 7
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Shares with guaranteed returns etc
Application of Part 5 to certain shares as rights under creditor relationship
522
Introduction to Chapter
(1)
This Chapter contains rules for Part 5 to apply in some cases as if at some times
in the accounting period of a company (“A”) which holds certain kinds of
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shares in another company (“B”) the shares were rights under a creditor
relationship of A.
(2)
See, in particular—
(a)
section 523 (application of Part 5 to some shares as rights under creditor
relationship), and
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(b)
sections 524 and 526 (which describe the two kinds of shares to which
the rules apply: shares subject to outstanding third party obligations
and non-qualifying shares).

Corporation Tax Bill
Part 6 — Relationships treated as loan relationships etc
Chapter 7 — Shares with guaranteed returns etc
249

(3)
In this Chapter references to the investing company are to A and references to
the issuing company are to B.
(4)
For the purposes of this Chapter a company is treated as continuing to hold a
share even though the share has been transferred to another person—
(a)
under a repo or stock lending arrangement, or
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(b)
under a transaction which is treated as not involving any disposal as a
result of section 26 of TCGA 1992 (mortgages and charges not to be
treated as disposals).
(5)
But subsection (4) does not apply for the purposes of section 535 (shares
ceasing to be shares to which section 523 applies).
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(6)
For the purposes of this Chapter, the definition of “share” in section 476(1) only
applies so far as it provides that “share” does not include a share in a building
society.
(7)
See section 116B of TCGA 1992 for the effect for the purposes of that Act of
shares beginning or ceasing to be shares to which section 523 applies.
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523
Application of Part 5 to certain shares as rights under creditor relationship
(1)
This section applies in relation to the times in a company’s accounting period
when—
(a)
the company holds a share in another company, and
(b)
either—
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(i)
section 524 (shares subject to outstanding third party
obligations) applies to the share, or
(ii)
that section does not so apply, but section 526 (non-qualifying
shares) does.
(2)
Part 5 applies as if at those times—
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(a)
the share were rights under a creditor relationship of the investing
company, and
(b)
any distribution in respect of the share were not a distribution (and
accordingly were within Part 5).
(3)
But no debits are to be brought into account by the investing company for the
30
purposes of Part 5 as respects the share, except where—
(a)
this section applies because of subsection (1)(b)(ii), and
(b)
the associated transactions condition is met (see section 532).
(4)
In this Chapter references to “the share” are to the share mentioned in
subsection (1).
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(5)
For special rules about the amounts to be brought into account where this
section applies, see section 534.
Shares subject to outstanding third party obligations
524
Shares subject to outstanding third party obligations
(1)
This section applies to the share held by the investing company if it—
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(a)
is subject to outstanding third party obligations (see subsection (2)),
and

Corporation Tax Bill
Part 6 — Relationships treated as loan relationships etc
Chapter 7 — Shares with guaranteed returns etc
250

(b)
is an interest-like investment (see section 525).
(2)
For the purposes of this Chapter a share is subject to outstanding third party
obligations if—
(a)
the share is subject to obligations of a kind specified in subsection (4) or
will or might be so subject under any relevant arrangements (see
5
subsection (5)),
(b)
the obligations are—
(i)
obligations of a person other than the investing company, or
(ii)
obligations of the investing company which, under any relevant
arrangements, will or might be discharged directly or indirectly
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by any other person, and
(c)
the obligations are yet to be discharged.
(3)
Accordingly, those obligations are the “third party obligations” in the case of
that share.
(4)
The kinds of obligation are—
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(a)
an obligation to meet unpaid calls on the share, and
(b)
any other obligation to make a contribution to the capital of the issuing
company that could affect the value of the share.
(5)
For the purposes of subsection (2)—
(a)
“arrangements” includes any agreement or understanding, whether or
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not it is legally enforceable, and
(b)
“arrangements” are “relevant” if they were entered into before or at the
time when the share was issued.
525
Meaning of “interest-like investment”
(1)
In section 524 “interest-like investment” means a share whose nature is such
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that its fair value—
(a)
is likely to increase at a rate which represents a return on an investment
of money at a commercial rate of interest, and
(b)
is unlikely to deviate to a substantial extent from that rate of increase.
(2)
Fluctuations in value resulting from changes in exchange rates are ignored for
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the purposes of subsection (1).
(3)
For the purposes of subsection (1), the fair value of a share which is subject to
outstanding third party obligations (see section 524(2)) must include the fair
value of the obligations.
(4)
For the purposes of subsection (1), it is assumed—
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(a)
that any third party obligations will be fully met at the time at which
they are due, and
(b)
that no transaction (or series of transactions) intended to prevent the
condition in subsection (1)(a) or (b) from being met will be or has been
entered into.
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