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 11 — Investment life insurance contracts
268

558
Interpretation of accounting expressions
(1)
In determining for the purposes of this Chapter whether an amount is recorded
as a financial asset or liability in respect of the advance, it is assumed that the
period of account in which the advance is received or made ended immediately
after the receipt or making of the advance.
5
(2)
In its application for the purposes of this Chapter, section 309(1) applies as if
the reference to a company were a reference to a person.
559
Minor definitions
In this Chapter—
“advance”—
10
(a)
in the case of a creditor repo, has the same meaning as in section
543,
(b)
in the case of a creditor quasi-repo, has the same meaning as in
section 544,
(c)
in the case of a debtor repo, has the same meaning as in section
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548, and
(d)
in the case of a debtor quasi-repo, has the same meaning as in
section 549,
“arrangement” includes any agreement or understanding (whether or not
it is legally enforceable),
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“creditor quasi-repo” has the meaning given by section 544,
“creditor repo” has the meaning given by section 543,
“debtor quasi-repo” has the meaning given by section 549,
“debtor repo” has the meaning given by section 548,
“discharge”, in relation to a liability, means the discharge of the liability in
25
whole or in part (and “discharged” is to be read accordingly),
“overseas dividend”, in relation to overseas securities, means any interest,
dividend or other annual payment payable in respect of the securities,
and
“overseas securities” means shares, stock or other securities issued by—
30
(a)
a government or public or local authority of a territory outside
the United Kingdom, or
(b)
any other body of persons not resident in the United Kingdom.
Chapter 11
Investment life insurance contracts
35
Introduction
560
Introduction to Chapter
(1)
This Chapter makes provision about investment life insurance contracts to
which relevant companies are party.
(2)
See, in particular—
40

Corporation Tax Bill
Part 6 — Relationships treated as loan relationships etc
Chapter 11 — Investment life insurance contracts
269

(a)
sections 562 to 565 (which make provision about treating the contracts
as creditor relationships in relation to those companies for the purposes
of Part 5), and
(b)
sections 566 to 569 (which make provision for cases where the relevant
company was a party to the contract before the beginning of the
5
company’s first accounting period beginning on or after 1 April 2008).
(3)
In this Chapter “relevant company” means a company which is not a life
insurance company.
(4)
In subsection (3) “life insurance company” means—
(a)
an insurance company (as defined in section 431(2) of ICTA) which
10
carries on long-term business (as defined in that section), or
(b)
a friendly society which would be such an insurance company but for
the words “(other than a friendly society)” in the definition of
“insurance company” in that section.
(5)
For the meaning of “investment life insurance contract”, see section 561.
15
561
Meaning of “investment life insurance contract”
(1)
In this Chapter “investment life insurance contract” means—
(a)
a policy of life insurance which has, or is capable of acquiring, a
surrender value,
(b)
a contract for a purchased life annuity, or
20
(c)
a capital redemption policy,

other than a relevant excluded contract.
(2)
In subsection (1)—
“capital redemption policy” means a contract made in the course of capital
redemption business (as defined in section 431(2ZF) of ICTA),
25
“purchased life annuity” means an annuity—
(a)
granted for consideration in money or money’s worth in the
ordinary course of a business of granting annuities on human
life, and
(b)
payable for a term ending at a time ascertainable only by
30
reference to the end of a human life (whether or not the annuity
may in some circumstances end before or after the life), and
“relevant excluded contract” means—
(a)
an investment life insurance contract under a registered
pension scheme,
35
(b)
an investment life insurance contract purchased with sums or
assets held for the purposes of a registered pension scheme, or
(c)
a policy of life insurance issued in respect of an insurance made
before 14 March 1989.
(3)
A policy of life insurance issued in respect of an insurance made before 14
40
March 1989 is treated for the purposes of this Chapter as issued in respect of
one made on or after that date if it is varied on or after that date so as—
(a)
to increase the benefits secured, or
(b)
to extend the term of the insurance.
(4)
For the purposes of subsection (3) any exercise of rights conferred by a policy
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is to be regarded as a variation of it.

Corporation Tax Bill
Part 6 — Relationships treated as loan relationships etc
Chapter 11 — Investment life insurance contracts
270

Investment life assurance contracts treated as creditor relationships
562
Contract to be loan relationship
(1)
If a relevant company is a party to an investment life insurance contract, for the
purposes of Part 5 (loan relationships) the contract is, in relation to the
company, a creditor relationship of the company.
5
(2)
Subsection (1) is subject to subsection (4).
(3)
Subsection (4) applies if—
(a)
the amount or value of a lump sum payable under an investment life
contract by reason of death or the onset of critical illness, exceeds
(b)
the surrender value of the contract immediately before the time when
10
the lump sum becomes payable.
(4)
If this subsection applies, that excess is not to be brought into account as a
credit under Part 5 representing a profit from a related transaction arising as a
result of the lump sum becoming payable.
563
Increased non-trading credits for BLAGAB and EEA taxed contracts
15
(1)
This section applies if—
(a)
as a result of section 562 the relevant company is required to bring into
account for an accounting period a non-trading credit representing a
profit from a related transaction, and
(b)
the investment life insurance contract is—
20
(i)
a BLAGAB contract, or
(ii)
a contract which is subject to a relevant comparable EEA tax
charge.
(2)
For the meaning of “BLAGAB contract” and of a contract being subject to a
relevant comparable EEA tax charge, see section 564.
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(3)
The non-trading credit is treated as increased by the relevant amount.
(4)
The relevant amount is set off against corporation tax assessable on the
company for the accounting period.
(5)
Except where section 565 (relevant amount where the relevant company uses
fair value accounting) applies, the relevant amount is—
30

where—
NTC is the non-trading credit, and
AR is the appropriate rate for the accounting period.
(6)
The appropriate rate for an accounting period is—
(a)
if a single rate of tax under section 88(1) of FA 1989 (lower corporation
35
tax rate on certain insurance company profits) is applicable in relation
to the accounting period, that rate, and
(b)
if more than one such rate of tax is applicable in relation to the
accounting period, the average of those rates over the accounting
period.
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Corporation Tax Bill
Part 6 — Relationships treated as loan relationships etc
Chapter 11 — Investment life insurance contracts
271

564
Section 563: interpretation
(1)
In section 563 “BLAGAB contract” means a contract forming part of basic life
assurance and general annuity business of an insurance company but not part
of business which is exempt from corporation tax under section 460 of ICTA
(friendly society business and former friendly society business).
5
(2)
For the purposes of section 563 a contract is subject to a relevant comparable
EEA tax charge if the contract forms part of the business of a company (other
than the relevant company) to which a relevant comparable EEA tax charge
has applied.
(3)
For the purposes of subsection (2) a relevant comparable EEA tax charge has
10
applied to a company if each of conditions A to D is met.
(4)
Condition A is that a charge to tax has applied to the company under the laws
of a territory outside the United Kingdom that is within the European
Economic Area.
(5)
Condition B is that the charge has applied to the company—
15
(a)
as a body deriving its status as a company from those laws,
(b)
as a company with its place of management there, or
(c)
as a company falling under those laws to be regarded for any other
reason as resident or domiciled there.
(6)
Condition C is that the charge applies at a rate of at least 20% in relation to the
20
amounts subject to tax in the company’s hands, other than amounts arising or
accruing in respect of investments of a description for which a special relief or
exemption is generally available.
(7)
Condition D is that the charge is made otherwise than by reference to the
company’s profits.
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565
Relevant amount where the relevant company uses fair value accounting
(1)
This section applies if the relevant company brings credits and debits in respect
of the investment life insurance contract into account on the basis of fair value
accounting.
(2)
If this section applies, the relevant amount for section 563 is—
30

where—
PC is the profit from the contract (see subsections (3) and (4)), and
AR is the appropriate rate for the accounting period (as defined in section
563(6)).
(3)
For the purposes of this section, except where subsection (4) applies, the profit
35
from the contract is any amount by which—
(a)
the amount payable as a result of the related transaction, exceeds
(b)
the fair value of the contract at the beginning time (see subsection (6)).
(4)
If the related transaction is an assignment or surrender of only part of the rights
conferred by the contract, the profit from the contract is any amount by
40
which—

Corporation Tax Bill
Part 6 — Relationships treated as loan relationships etc
Chapter 11 — Investment life insurance contracts
272

(a)
the amount payable as a result of the related transaction, exceeds
(b)
the relevant fraction of the fair value of the contract at the beginning
time.
(5)
In subsection (4) “the relevant fraction” means—

where—
5
C is the amount payable as a result of the related transaction, and
FVC is the fair value of the contract immediately before the related
transaction.
(6)
In this section “the beginning time” means—
(a)
if the contract was made before the beginning of the first accounting
10
period of the company beginning on or after 1st April 2008, at the
beginning of that period, and
(b)
otherwise when the contract was made.
Old accounting period contracts
566
Introduction
15
(1)
This section and sections 567 to 569 apply if the relevant company was a party
to an investment life insurance contract immediately before the beginning of
the first accounting period of the company beginning on or after 1 April 2008.
(2)
In those sections—
“the deemed surrender” means the surrender of all the rights under that
20
contract that the relevant company was deemed for the purposes of
Chapter 2 of Part 13 of ICTA (life policies etc) to have made
immediately before 1 April 2008 under paragraph 6(1) of Schedule 13
to FA 2008 for an amount equal to the carrying value of the contract at
that time as recognised for accounting purposes,
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“the first accounting period” means the first accounting period of the
company beginning on or after that date, and
“the old contract” means the contract mentioned in subsection (1).
567
Gains on deemed surrenders to be brought into account on related
transactions
30
(1)
Any gain which arose under Chapter 2 of Part 13 of ICTA (life policies etc) as
a result of the deemed surrender (“the deemed gain”) is to be brought into
account by the relevant company as a non-trading credit for the accounting
period in which there is a related transaction (so far as not previously brought
into account under this section).
35
(2)
But if the relevant company is still a party to the old contract immediately after
the related transaction, only the relevant fraction of the deemed gain which
would otherwise be brought into account under subsection (1) is to be so
brought into account.

Corporation Tax Bill
Part 6 — Relationships treated as loan relationships etc
Chapter 11 — Investment life insurance contracts
273

(3)
The relevant fraction” is—

where—
P is the amount payable as a result of the related transaction, and
SAR is the amount which would have been payable on a surrender of all
the rights under the old contract immediately before the related
5
transaction.
568
Restriction on credits on old contracts: fair value accounting cases
(1)
This section applies if—
(a)
at all times since the old contract was made the rights conferred by it
have been in the beneficial ownership of the relevant company,
10
(b)
the company brings into account credits and debits in respect of the old
contract on the basis of fair value accounting, and
(c)
the old contract cost exceeds the fair value of the contract immediately
before the beginning of the first accounting period.
(2)
In subsection (1)(c) “the old contract cost” means—
15
(a)
if section 541 of ICTA applied on the deemed surrender, the amount
specified in section 541(1)(b)(i) of that Act, less the amount or value of
any relevant capital payments (as defined in section 541(5)(a) of that
Act), and
(b)
if section 543 of that Act applied on the deemed surrender, the amount
20
specified in section 543(1)(a)(i) of that Act, less the amount or value of
any relevant capital payments (as defined in section 543(3) of that Act).
(3)
No amount is to be brought into account as a credit in relation to the old
contract by the relevant company as a result of section 562 except so far as the
total of—
25
(a)
the amount of the credit, and
(b)
the amount of any other credits which have previously arisen in
relation to the old contract as a result of that section,

is greater than the excess mentioned in subsection (1)(c).
569
Restriction on debits on old contracts: non-fair value accounting cases
30
(1)
This section applies where—
(a)
the relevant company brings into account credits and debits in respect
of the old contract otherwise than on the basis of fair value accounting,
and
(b)
the carrying value of the old contract, as recognised for accounting
35
purposes immediately before the beginning of the first accounting
period, exceeds its fair value at that time.
(2)
No amount is to be brought into account as a debit in relation to the old
contract by the relevant company as a result of section 562 except so far as the
total of—
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Corporation Tax Bill
Part 7 — Derivative contracts
Chapter 1 — Introduction
274

(a)
the amount of the debit, and
(b)
the amount of any other debits which have previously arisen in relation
to the contract as a result of that section,

is greater than the excess mentioned in subsection (1)(b).
Part 7
5
Derivative contracts
Chapter 1
Introduction
Introduction
570
Overview of Part
10
(1)
This Part is about how profits and losses arising to a company from its
derivative contracts are brought into account for corporation tax purposes.
(2)
For the meaning of “derivative contract”, see section 576 and the remainder of
Chapter 2.
(3)
For how such profits and losses are calculated and brought into account, see—
15
(a)
section 572 (profits and losses to be calculated using credits and debits
given by this Part),
(b)
section 573 (trading credits and debits to be brought into account under
Part 3),
(c)
section 574 (non-trading credits and debits to be brought into account
20
under Part 5), and
(d)
Chapter 7 (chargeable gains arising in relation to derivative contracts).
(4)
For the priority of this Part for corporation tax purposes, see Chapter 12.
(5)
This Part also contains the following Chapters (which mainly relate to the
amounts to be brought into account in respect of derivative contracts)—
25
(a)
Chapter 3 (credits and debits to be brought into account: general),
(b)
Chapter 4 (further provision about credits and debits to be brought into
account),
(c)
Chapter 5 (continuity of treatment on transfers within groups),
(d)
Chapter 6 (special kinds of company),
30
(e)
Chapter 8 (further provision about chargeable gains and derivative
contracts),
(f)
Chapter 9 (European cross-border transfers of business),
(g)
Chapter 10 (European cross-border mergers),
(h)
Chapter 11 (tax avoidance), and
35
(i)
Chapter 13 (general and supplementary provisions).
(6)
See also section 980 of ITA 2007 (payments under derivative contracts excepted
from duty to deduct income tax).