Corporation Tax Bill

House of Commons

Session 2008 - 09
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Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Schedule 2 — Transitionals and savings
Part 8 — Loan relationships
757

      (2)
The debit is ignored in determining the accounting value of an asset of the
company at the end of the earlier period for the purposes of section 316
(change of accounting policy involving change of value).
Bringing into account losses on overseas sovereign debt etc
63    (1)
This paragraph applies if at the end of the last period of account of a
5
company before paragraph 17(1)(b) of Schedule 4 to FA 2005 (which
repealed paragraph 9 of Schedule 9 to FA 1996) had effect—
(a)
the company had ceased to be a party to a loan relationship, and
(b)
the effect of paragraph 9 of Schedule 9 to FA 1996 (restrictions on
bringing into account losses on overseas sovereign debt) (or a
10
corresponding earlier enactment) was that part of the loss arising
had not been brought into account for tax purposes.
      (2)
Despite the repeal by this Act of paragraph 17(3) of Schedule 4 to FA 2005,
any debit that, as a result of that paragraph, immediately before its repeal
could have been brought into account for the purposes of Chapter 2 of Part
15
4 of FA 1996 (loan relationships) under paragraph 9(4) or (5) of Schedule 9 to
FA 1996 in a subsequent period of account of the company may be brought
into account in such a period for the purposes of Part 5 (loan relationships).
Saving for old elections for treating loan relationships with embedded derivatives as two assets
64    (1)
The repeal by this Act of paragraph 7 of Schedule 6 to F(No.2)A 2005 (loan
20
relationships with embedded derivatives) does not affect—
(a)
any election made under that paragraph immediately before the
repeal takes effect, or
(b)
any election which immediately before the repeal takes effect had
effect as if so made as a result of sub-paragraph (8) of that paragraph
25
(elections made under paragraph 28(3) of Schedule 4 to FA 2005).
      (2)
This Act applies to those elections as if they had been made under section
416 (election for application of sections 415 and 585).
Deeply discounted securities of close companies: discounts for accounting periods beginning
before 1 April 2007
30
65    (1)
This paragraph applies as regards a debtor relationship entered into in
pursuance of a contract—
(a)
made before 4 March 2005, and
(b)
not varied after that date, or not varied until after that date.
      (2)
A debit is not allowed or required, as a result of the amendments made by
35
paragraph 3(2) and (4) to (7) of Schedule 8 to F(No.2)A 2005, to be brought
into account under Part 5 for an accounting period in respect of any amount
of discount in respect of which a debit is so brought into account for any
earlier accounting period.
      (3)
In sub-paragraph (2) “earlier accounting period” means an accounting
40
period that began before—
(a)
1 April 2007, or
(b)
if the contract mentioned in sub-paragraph (1) was varied before that
date, the date of variation.

Corporation Tax Bill
Schedule 2 — Transitionals and savings
Part 8 — Loan relationships
758

      (4)
The references in this paragraph to the variation of a contract do not include
references to a variation that does not affect the terms of the debtor
relationship in question.
Repo, stock lending and other transactions before 1 October 2007: disapplication of section 332
66
Section 332 (repo, stock lending and other transactions) does not apply in
5
relation to cases where there is—
(a)
an arrangement to which Chapter 10 of Part 6 would apply if the
arrangement had not come into force before 1 October 2007,
(b)
a stock lending arrangement (within the meaning of section 263B(1)
of TCGA 1992), which came into force before that date and under
10
which the lender transfers securities to the borrower otherwise than
by way of sale, or
(c)
any other disposal before that date.
Avoidance relying on continuity of treatment provisions: transactions before 16 May 2008
67
Section 347 (disapplication of Chapter 4 of Part 5 where transferor party to
15
avoidance) does not have effect in relation to transactions taking place, or a
series of transactions of which the first takes place, before 16 May 2008.
Disposals for consideration not fully recognised by accounting practice: disposals before 16
May 2008
68
Section 455 (disposals for consideration not fully recognised by accounting
20
practice) does not have effect in relation to disposals before 16 May 2008.
5½% Treasury Stock 2008-2012 not redeemed before 6 April 2009
69    (1)
This paragraph applies if any loan relationship of a company—
(a)
is represented by any 5½% Treasury Stock 2008-2012, and
(b)
is one to which the company is a party otherwise than in the course
25
of activities that form an integral part of a trade it carries on.
      (2)
No amounts fall to be brought into account for the purposes of Part 5 in
respect of the loan relationship unless they relate to interest.
References to Companies Act 2006
70
Until section 658 of the Companies Act 2006 (c. 46) (rule against limited
30
company acquiring own shares) comes into force, references to that section
in sections 421(4)(g)(ii) and 431(7)(b) have effect as if they were references to
section 143 of the Companies Act 1985 (c. 6).
Prospective repeal of provisions concerning exchange gains and losses from loan relationships
71    (1)
The following provisions (which rewrite provisions prospectively repealed
35
by F(No.2)A 2005 or are related to such provisions) cease to have effect—
(a)
section 306(2)(e) (introduction to section 328),
(b)
section 310(5) (power to make regulations about recognised
amounts: exception for exchange gains and losses),
(c)
section 328 (exchange gains and losses),
40
(d)
section 384 (treatment of exchange gains and losses),

Corporation Tax Bill
Schedule 2 — Transitionals and savings
Part 9 — Relationships treated as loan relationships
759

(e)
section 450(6) (meaning of “corresponding debtor relationship”:
disregard of section 328(2) to (7)), and
(f)
section 151F of TCGA 1992 (exchange gains and losses from loan
relationships: regulations).
      (2)
For the power to make an order bringing this paragraph into force, see
5
section 1329(3).
Part 9
Relationships treated as loan relationships
Relevant non-lending relationships: discounts accruing and profits arising before 16 March
2005
10
72    (1)
None of the following is to be brought into account for the purposes of Part
5 as a result of any of the provisions specified in sub-paragraph (2) or any
reference to that provision in any other provision—
(a)
credits in respect of a discount arising from a money debt, so far as
the discount accrued before 16 March 2005,
15
(b)
credits in respect of profits arising as mentioned in 481(3)(c) or (5)(c)
where the related transaction took place before that date,
(c)
debits in respect of any impairment arising in respect of a discount
arising from a money debt, so far as the discount accrued before that
date,
20
(d)
credits in respect of any reversal of any such impairment, so far as the
discount accrued before that date.
      (2)
The provisions are—
(a)
section 480 (relevant non-lending relationships involving discounts),
(b)
section 481(3)(c) and (5) to (8) (application of Part 5 to relevant non-
25
lending loan relationships), and
(c)
section 482(2) (miscellaneous rules about amounts to be brought into
account because of Chapter 2 of Part 6).
      (3)
This paragraph is to be read as if it were in Chapter 2 of Part 6.
Alternative finance arrangements entered into before 6 April 2005
30
73    (1)
Chapter 6 of Part 6 (alternative finance arrangements) only applies to
alternative finance arrangements entered into before 6 April 2005 (“pre-6
April 2005 arrangements”) if they are relevant deposit arrangements and
then only so far as provided by this paragraph.
      (2)
In this paragraph “relevant deposit arrangements” means deposit
35
arrangements under which alternative finance return is payable on or after
6 April 2005.
      (3)
For the purposes of Part 5 (loan relationships) the loan that is treated under
section 509 (application of Part 5: general) as made by or to a company that
is party to the pre-6 April 2005 arrangements is a loan made on 6 April 2005
40
of an amount equal to the notional carrying value of the asset or liability
representing the arrangements.
      (4)
For the purposes of sub-paragraph (3) that notional carrying value is the
amount that would have been the carrying value of the asset or liability in

Corporation Tax Bill
Schedule 2 — Transitionals and savings
Part 9 — Relationships treated as loan relationships
760

the accounts of the company (prepared in accordance with generally
accepted accounting practice) if a period of account had ended immediately
before 6 April 2005.
Profit share agency arrangements entered into before 1 April 2006
74    (1)
Chapter 6 of Part 6 (alternative finance arrangements) only applies to profit
5
share agency arrangements entered into before 1 April 2006 (“pre-1 April
2006 arrangements”) if they are relevant profit share agency arrangements
and then only so far as provided by this paragraph.
      (2)
In this paragraph “relevant profit share agency arrangements” means profit
share agency arrangements under which alternative finance return is
10
payable on or after 1 April 2006.
      (3)
For the purposes of Part 5 (loan relationships) the loan that is treated under
section 509 (application of Part 5: general) as made by or to a company that
is party to the pre-1 April 2006 arrangements is a loan made on 1 April 2006
of an amount equal to the notional carrying value of the asset or liability
15
representing the arrangements.
      (4)
For the purposes of sub-paragraph (3) that notional carrying value is the
amount that would have been the carrying value of the asset or liability in
the accounts of the company (prepared in accordance with generally
accepted accounting practice) if a period of account had ended immediately
20
before 1 April 2006.
Investment bond arrangements entered into before 1 April 2007
75    (1)
Chapter 6 of Part 6 (alternative finance arrangements) only applies to
investment bond arrangements entered into before 1 April 2007 (“pre-1
April 2007 arrangements”) if they are relevant investment bond
25
arrangements and then only so far as provided by this paragraph.
      (2)
In this paragraph “relevant investment bond arrangements” means
investment bond arrangements under which alternative finance return is
payable on or after 1 April 2007.
      (3)
For the purposes of Part 5 (loan relationships) the loan that is treated under
30
section 509 (application of Part 5: general) as made by or to a company that
is party to the pre-1 April 2007 arrangements is a loan made on 1 April 2007
of an amount equal to the notional carrying value of the asset or liability
representing the arrangements.
      (4)
For the purposes of sub-paragraph (3) that notional carrying value is the
35
amount that would have been the carrying value of the asset or liability in
the accounts of the company (prepared in accordance with generally
accepted accounting practice) if a period of account had ended immediately
before 1 April 2007.
Shares with guaranteed returns: redeemable shares where public issue before 22 March 2006
40
76
In relation to any case where the public issue (within the meaning of section
530(4) and (5)) is before 22 March 2006 for “7 days” in subsections (4)(b) and
(5)(a) of section 530 (the redemption return condition: excepted shares)
substitute “24 hours”.

Corporation Tax Bill
Schedule 2 — Transitionals and savings
Part 10 — Derivative contracts
761

Shares with guaranteed returns: income-producing assets for the increasing value condition
77
In relation to any time before 16 May 2008, section 527(4) (meaning of
“income-producing assets” for the purposes of the increasing value
condition) applies with the substitution for paragraph (c) of the following
paragraph—
5
“(c)
any share as respects which the redemption return condition
is met or would be met apart from section 529(1)(c) (excepted
shares),”.
Repo transactions and stock lending arrangements before 1 October 2007
78    (1)
Chapter 10 of Part 6 (repos) does not apply in relation to an arrangement
10
which came into force before 1 October 2007.
      (2)
The repeal by this Act of paragraph 15 of Schedule 9 to FA 1996 (repo
transactions and stock-lending) does not affect its application in relation to
cases where there is—
(a)
an arrangement to which Chapter 10 of Part 6 would apply if the
15
arrangement had not come into force before 1 October 2007,
(b)
a stock lending arrangement (within the meaning of section 263B(1)
of TCGA 1992), which came into force before that date and under
which the lender transfers securities to the borrower otherwise than
by way of sale, or
20
(c)
any other disposal before that date.
      (3)
But that paragraph applies with the substitution—
(a)
for references to Chapter 2 of Part 4 of FA 1996 of references to Part
5 of this Act, and
(b)
for the reference in sub-paragraph (5) to section 84 of that Act of a
25
reference to section 304 of this Act.
Part 10
Derivative contracts
Interpretation
79
Expressions used in this Part of this Schedule and in Part 7 of this Act have
30
the same meaning as in Part 7.
Extended meaning of reference in section 591(6)(b)
80
The reference in section 591(6)(b) (condition E) to the provisions in section
591(7) includes a reference to paragraphs 82 and 86 of this Schedule.
Disapplication of section 645
35
81
Section 645 (creditor relationships: embedded derivatives which are
options) does not apply to a derivative contract of a company for an
accounting period if the asset representing the creditor relationship is an
asset in relation to which paragraph 9(2) of Schedule 10 to FA 2004 has effect.

Corporation Tax Bill
Schedule 2 — Transitionals and savings
Part 10 — Derivative contracts
762

Existing assets representing creditor relationships: options
82    (1)
This paragraph applies if section 645 would apply to a derivative contract of
a company for an accounting period but for the fact that the asset
representing the creditor relationship is an asset in relation to which
paragraph 9(2) of Schedule 10 to FA 2004 has effect.
5
      (2)
Section 574 (non-trading credits and debits to be brought into account under
Part 5) does not apply to the credits and debits which are given in relation to
the derivative contract for the accounting period by section 595.
      (3)
The asset representing the creditor relationship is treated for corporation tax
purposes as not being a qualifying corporate bond.
10
      (4)
For the purposes of corporation tax on chargeable gains, the amount or
value of the consideration for any disposal by the company of the asset
representing the creditor relationship is reduced by so much of that amount
or value as, on a just and reasonable apportionment, relates to interest
within sub-paragraph (5).
15
      (5)
Interest is within this sub-paragraph if—
(a)
it falls to be brought into account under Part 5 of this Act (loan
relationships) as accruing to any company at any time, and
(b)
in consequence of, or of the terms of, the disposal, it is not paid or
payable to the company to which it is treated for the purposes of that
20
Part as accruing.
      (6)
For the purposes of corporation tax on chargeable gains, the amount or
value of the consideration for any disposal by the company of the asset
mentioned in sub-paragraph (4)—
(a)
is increased by the addition of any relevant exchange losses, and
25
(b)
is (after giving effect to any such increase) reduced (but not below
nil) by the deduction of any relevant exchange gains.
      (7)
If the amount of the relevant exchange gains falling to be deducted under
sub-paragraph (6)(b) exceeds the amount required to reduce the amount or
value of the consideration to nil, the excess is treated for the purposes of
30
section 38(1)(c) of TCGA 1992 as incidental costs of the disposal of the asset
mentioned in sub-paragraph (4).
83    (1)
This paragraph applies for the purposes of paragraph 82.
      (2)
“Relevant exchange gains” means an amount within sub-paragraph (4) or
(5).
35
      (3)
“Relevant exchange losses” means an amount which would be within sub-
paragraph (4) or (5) if references in those sub-paragraphs to exchange gains
were read as references to exchange losses.
      (4)
An amount is within this sub-paragraph if it is the amount of any exchange
gains in respect of the asset mentioned in paragraph 82(4) which are brought
40
into account under Part 5 of this Act (loan relationships) by the company for
an accounting period throughout which the company holds that asset.
      (5)
For any accounting period not within sub-paragraph (4) in which the
company holds that asset, an amount is within this sub-paragraph if it is an
amount which, on a just and reasonable apportionment, represents so much
45
of the amount of any exchange gains brought into account under that Part in

Corporation Tax Bill
Schedule 2 — Transitionals and savings
Part 10 — Derivative contracts
763

respect of that asset by the company for that period as is referable to the part
of the period for which the company holds that asset.
84    (1)
This paragraph applies if—
(a)
there has been a reorganisation for the purposes of sections 126 to 132
of TCGA 1992, and
5
(b)
for the purposes of those sections, the asset mentioned in paragraph
82(4) is treated as the original shares.
      (2)
The reference in paragraph 82(4) to the disposal of that asset is a reference to
the disposal of the asset which, as a result of the reorganisation, has become
the new holding for the purposes of those sections.
10
Disapplication of section 648
85
Section 648 (creditor relationships: embedded derivatives which are exactly
tracking contracts for differences) does not apply to a derivative contract of
a company for an accounting period if the asset representing the creditor
relationship is an asset in relation to which paragraph 11(2) of Schedule 10
15
to FA 2004 has effect.
Existing assets representing creditor relationships: contracts for differences
86    (1)
This paragraph applies if section 648 would apply to a derivative contract of
a company for an accounting period but for the fact that the asset
representing the creditor relationship is an asset in relation to which
20
paragraph 11(2) of Schedule 10 to FA 2004 has effect.
      (2)
Section 574 (non-trading credits and debits to be brought into account under
Part 5) does not apply to the credits and debits which are given in relation to
the derivative contract for the accounting period by section 595.
      (3)
The asset representing the creditor relationship is treated for corporation tax
25
purposes as not being a qualifying corporate bond.
      (4)
For the purposes of corporation tax on chargeable gains, the amount or
value of the consideration for any disposal by the company of the asset
representing the creditor relationship is reduced by so much of that amount
or value as, on a just and reasonable apportionment, relates to interest
30
within sub-paragraph (5).
      (5)
Interest is within this sub-paragraph if—
(a)
it falls to be brought into account under Part 5 of this Act (loan
relationships) as accruing to any company at any time, and
(b)
in consequence of, or of the terms of, the disposal, it is not paid or
35
payable to the company to which it is treated for the purposes of that
Part as accruing.
87    (1)
This paragraph applies if—
(a)
there has been a reorganisation for the purposes of sections 126 to 132
of TCGA 1992, and
40
(b)
for the purposes of those sections, the asset mentioned in paragraph
86(4) is treated as the original shares.
      (2)
The reference in paragraph 86(4) to the disposal of that asset is a reference to
the disposal of the asset which, as a result of the reorganisation, has become
the new holding for the purposes of those sections.
45