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638 | Venture capital trusts: profits or losses of a capital nature |
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(1) | Profits or losses of a capital nature arising to a venture capital trust from a |
| |
derivative contract may not be brought into account as credits or debits in |
| |
accordance with this Part. |
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(2) | For the purposes of this section, “profits or losses of a capital nature” means |
| 5 |
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(a) | are accounted for through the capital column of the income statement |
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in accordance with the Statement of Recommended Practice, or |
| |
(b) | would have been so accounted for if the venture capital trust had been |
| |
an investment trust and that Statement had been applied correctly. |
| 10 |
(3) | In this section “the Statement of Recommended Practice” has the meaning |
| |
given by section 637(3) (investment trusts: profits or losses of a capital nature). |
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(4) | The Treasury may by order amend the definition of “profits or losses of a |
| |
capital nature” in subsection (2), so far as it applies in relation to a venture |
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capital trust which prepares accounts in accordance with international |
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| |
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Chargeable gains arising in relation to derivative contracts |
| |
| |
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(1) | This Chapter makes provision about cases in which— |
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(a) | credits and debits are not to be brought into account in accordance with |
| |
section 574 (non-trading credits and debits to be brought into account |
| |
under Part 5: loan relationships) (see sections 640 and 643 to 650), but |
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(b) | instead profits arising to a company from its derivative contracts are |
| 25 |
chargeable to corporation tax as chargeable gains (see sections 641 to |
| |
| |
(2) | This Chapter also makes provision about cases in which— |
| |
(a) | credits and debits are not to be brought into account in accordance with |
| |
section 573 (trading credits and debits to be brought into account under |
| 30 |
Part 3: trading income) or section 574 (non-trading credits and debits to |
| |
be brought into under Part 5: loan relationships) (see section 651), but |
| |
(b) | instead provisions relating to corporation tax on chargeable gains |
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apply in relation to derivative contracts (see sections 652 to 658). |
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Some credits and debits not to be brought into account under Part 5 |
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640 | Credits and debits not to be brought into account under Part 5 |
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(1) | If any of the provisions in subsection (2) applies to a derivative contract of a |
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company for an accounting period, section 574 (non-trading credits and debits |
| |
to be brought into account under Part 5: loan relationships) does not apply to |
| |
the relevant credits and debits. |
| 40 |
|
| |
|
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|
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(a) | section 643 (contracts relating to land or certain tangible movable |
| |
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(b) | section 645 (creditor relationships: embedded derivatives which are |
| |
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(c) | section 648 (creditor relationships: embedded derivatives which are |
| |
exactly tracking contracts for differences), and |
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(d) | section 650 (property based total return swaps). |
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(3) | For the meaning of “relevant credits” and “relevant debits”, see section 659. |
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(4) | For the treatment of the relevant credits and debits in the case of a derivative |
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contract to which section 643, 645, 648 or 650 applies, see section 641 (derivative |
| |
contracts to be taxed on a chargeable gains basis). |
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Some derivative contracts to be taxed on a chargeable gains basis |
| |
641 | Derivative contracts to be taxed on a chargeable gains basis |
| |
(1) | This section applies to a derivative contract of a company for an accounting |
| 15 |
period if any of the provisions in subsection (2) applies to the derivative |
| |
| |
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(a) | section 643 (contracts relating to land or certain tangible movable |
| |
| 20 |
(b) | section 645 (creditor relationships: embedded derivatives which are |
| |
| |
(c) | section 648 (creditor relationships: embedded derivatives which are |
| |
exactly tracking contracts for differences), and |
| |
(d) | section 650 (property based total return swaps). |
| 25 |
(3) | For the purposes of corporation tax on chargeable gains— |
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(a) | if C exceeds D, a chargeable gain equal to the amount of the excess is |
| |
treated as accruing to the company in the accounting period, |
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(b) | if D exceeds C, an allowable loss equal to the amount of the excess is |
| |
treated as accruing to the company in the accounting period. |
| 30 |
(4) | “C” means the sum of the relevant credits for the accounting period in respect |
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of the derivative contract. |
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(5) | “D” means the sum of the relevant debits for the accounting period in respect |
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of the derivative contract. |
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(6) | For a case in which this section does not apply, see section 642. |
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(7) | See also section 663 (carry back of net losses on derivative contracts to which |
| |
| |
642 | Exception from section 641 |
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(1) | Section 641 does not apply to a derivative contract to which section 645 applies |
| |
if, on the assumptions in subsection (2), paragraph 2 of Schedule 7AC to TCGA |
| 40 |
1992 (substantial shareholding exemptions: gain on disposal of asset related to |
| |
|
| |
|
| |
|
shares not a chargeable gain) would apply to the gain mentioned in subsection |
| |
| |
(2) | Those assumptions are that— |
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(a) | the rights and liabilities treated as comprised in the derivative contract |
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were contained in a separate contract, |
| 5 |
(b) | that separate contract was an option, |
| |
(c) | that option was disposed of at the end of the accounting period, and |
| |
(d) | a gain accrued to the company on the disposal for the purposes of |
| |
corporation tax on chargeable gains. |
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Derivative contracts to which sections 640 and 641 apply |
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643 | Contracts relating to land or certain tangible movable property |
| |
(1) | This section applies to a derivative contract of a company for an accounting |
| |
period if conditions A, B and C are met. |
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(2) | Condition A is that the underlying subject matter of the derivative contract |
| |
consists of either or both of the following— |
| 15 |
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(b) | tangible movable property, other than commodities which are tangible |
| |
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(3) | Condition B is that the company is not a party to the derivative contract at any |
| |
time in the accounting period for the purposes of a trade carried on by it. |
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(4) | Condition C is that the company is not an excluded body. |
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(5) | For the case where the underlying subject matter of a derivative contract also |
| |
includes income from property within subsection (2)(a) or (b), see section 644. |
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644 | Income to be left out of account in determining whether section 643 applies |
| |
(1) | This section applies if the underlying subject matter of a derivative contract |
| 25 |
includes income from property within section 643(2)(a) or (b). |
| |
(2) | If that income is subordinate income, it is left out of account in determining for |
| |
the purposes of section 643 whether condition A is met. |
| |
(3) | Income is “subordinate income” if it is— |
| |
(a) | subordinate in relation to so much of the underlying subject matter of |
| 30 |
the derivative contract as consists of property within section 643(2)(a) |
| |
| |
(b) | of small value in comparison with the value of the underlying subject |
| |
| |
(4) | For the purposes of this section, whether part of the underlying subject matter |
| 35 |
of a derivative contract of a company is subordinate or of small value is to be |
| |
determined by reference to the time when the company enters into or acquires |
| |
| |
|
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|
| |
|
645 | Creditor relationships: embedded derivatives which are options |
| |
(1) | This section applies to a derivative contract of a company for an accounting |
| |
period if each of conditions A to E is met. |
| |
(2) | Condition A is that the derivative contract is a relevant contract to which the |
| |
company is treated as a party under section 585(2) (loan relationships with |
| 5 |
embedded derivatives) because of a creditor relationship of the company. |
| |
(3) | Condition B is that the derivative contract is treated as an option by section |
| |
585(3) (contract treated as option, future or contract for differences). |
| |
(4) | Condition C is that the underlying subject matter of the derivative contract— |
| |
(a) | is qualifying ordinary shares, or |
| 10 |
(b) | is mandatorily convertible preference shares. |
| |
(5) | Condition D is that the company is not a party to the creditor relationship at |
| |
any time in the accounting period for the purposes of a trade carried on by it. |
| |
(6) | Condition E is that the company is not an excluded body. |
| |
(7) | Where this section applies to a derivative contract, the asset representing the |
| 15 |
creditor relationship is treated for corporation tax purposes as not being a |
| |
qualifying corporate bond. |
| |
| |
(a) | section 647 (meaning of certain expressions in this section), and |
| |
(b) | section 670 (treatment of net gains and losses on exercise of option). |
| 20 |
646 | Exclusions from section 645 |
| |
(1) | Section 645 does not apply to a derivative contract of a company for an |
| |
accounting period if condition A or B is met in the period. |
| |
(2) | Condition A is that the rights and liabilities which fall to be treated as |
| |
comprised in the derivative contract are such that the extent to which shares |
| 25 |
may be acquired in accordance with them is to be determined using a cash |
| |
| |
(a) | which is specified in the contract for the asset representing the creditor |
| |
relationship mentioned in section 645(2), or |
| |
(b) | which is or will be ascertainable by reference to that contract. |
| 30 |
(3) | Condition B is that the rights and liabilities which fall to be treated as |
| |
comprised in the derivative contract are such that— |
| |
(a) | the company is entitled or obliged to receive a payment instead of the |
| |
shares which are the underlying subject matter of the derivative |
| |
| 35 |
(b) | the amount of that payment differs by more than an insignificant |
| |
amount from the value of the shares which the company would be |
| |
entitled to acquire in accordance with those rights and liabilities at the |
| |
time it became entitled or obliged to receive the payment. |
| |
647 | Meaning of certain expressions in section 645 |
| 40 |
(1) | This section applies for the purposes of section 645. |
| |
(2) | “Mandatorily convertible preference shares” means shares which— |
| |
|
| |
|
| |
|
(a) | represent the creditor relationship mentioned in section 645(2), |
| |
(b) | are not qualifying ordinary shares, and |
| |
(c) | are issued upon terms which stipulate that they must be converted into, |
| |
or exchanged for, qualifying ordinary shares by a relevant time. |
| |
(3) | In subsection (2) “relevant time” means a time no more than 24 hours after the |
| 5 |
acquisition of the shares by a person who, immediately before that acquisition, |
| |
had the creditor relationship. |
| |
(4) | “Qualifying ordinary shares” means shares in a company which satisfy |
| |
| |
(5) | Condition A is that the shares are all or part of the issued share capital |
| 10 |
(however described) of the company, other than— |
| |
(a) | capital the holders of which have a right to a dividend at a fixed rate but |
| |
have no other right to share in the profits of the company, or |
| |
(b) | capital the holders of which have no right to a dividend of any |
| |
description nor any other right to share in the profits of the company. |
| 15 |
(6) | Condition B is that the shares— |
| |
(a) | are listed on a recognised stock exchange, or |
| |
(b) | are shares in a holding company or a trading company. |
| |
(7) | In subsection (6) “holding company” and “trading company” have the same |
| |
meaning as in section 165 of TCGA 1992 (see section 165A of that Act). |
| 20 |
648 | Creditor relationships: embedded derivatives which are exactly tracking |
| |
contracts for differences |
| |
(1) | This section applies to a derivative contract of a company for an accounting |
| |
period if each of conditions A to F is met. |
| |
(2) | Condition A is that the derivative contract is a relevant contract to which the |
| 25 |
company is treated as a party under section 585(2) (loan relationships with |
| |
embedded derivatives) because of a creditor relationship of the company. |
| |
(3) | Condition B is that the derivative contract is treated as a contract for differences |
| |
by section 585(3) (contract treated as option, future or contract for differences). |
| |
(4) | Condition C is that the derivative contract is an exactly tracking contract. |
| 30 |
(5) | Condition D is that the underlying subject matter of the derivative contract is |
| |
qualifying ordinary shares listed on a recognised stock exchange. |
| |
(6) | Condition E is that the company is not a party to the creditor relationship at |
| |
any time in the accounting period for the purposes of a trade carried on by it. |
| |
(7) | Condition F is that the company is not an excluded body. |
| 35 |
(8) | Where this section applies to a derivative contract, the asset representing the |
| |
creditor relationship is treated for corporation tax purposes as not being a |
| |
qualifying corporate bond. |
| |
(9) | See also section 672 (treatment of net gains and losses on disposal of certain |
| |
| 40 |
|
| |
|