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 10 — Derivative contracts
764

Disapplication of section 658
88    (1)
Section 658 (chargeable gain or allowable loss treated as accruing) does not
apply to a derivative contract of a company for an accounting period if the
liability representing the debtor relationship was owed by the company
immediately before its first accounting period to begin on or after 1 January
5
2005.
      (2)
If section 658 would apply to a derivative contract for an accounting period
but for sub-paragraph (1), 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
10
period by section 595.
Disapplication of section 661
89
Section 661 (contract which becomes derivative contract) does not apply if
the relevant contract became a derivative contract before 30 December 2006.
Disapplication of section 666
15
90
Section 666 (allowable loss treated as accruing) does not apply to a company
if the liability representing the debtor relationship was owed by the
company immediately before its first accounting period to begin on or after
1 January 2005.
Contracts which became derivative contracts on 16 March 2005
20
91    (1)
This paragraph applies in relation to a company if conditions A, B and C are
met in relation to a relevant contract.
      (2)
Condition A is that the company was a party to the relevant contract both
immediately before and at 3.00pm on 16 March 2005.
      (3)
Condition B is that the relevant contract—
25
(a)
was not a derivative contract immediately before 3.00pm on that
date, but
(b)
has been a derivative contract as from that time.
      (4)
Condition C is that the relevant contract was a chargeable asset immediately
before that time.
30
      (5)
If the company ceases to be a party to the contract, it must bring into account
for the accounting period in which it so ceases the amount of any chargeable
gain or allowable loss which would have been treated as accruing to it on the
assumptions in sub-paragraph (6).
      (6)
Those assumptions are that—
35
(a)
the company disposed of the contract immediately before 3.00pm on
16 March 2005, and
(b)
the disposal was for consideration of an amount equal to the value (if
any) given to the contract in the accounts of the company at the end
of the company’s accounting period immediately before its first
40
accounting period—
(i)
beginning on or after 1 January 2005, and
(ii)
ending on or after 16 March 2005.

Corporation Tax Bill
Schedule 2 — Transitionals and savings
Part 10 — Derivative contracts
765

Contracts which became derivative contracts on 28 July 2005
92    (1)
This paragraph applies in relation to a company if conditions A, B and C are
met in relation to a relevant contract.
      (2)
Condition A is that the company was a party to the contract both
immediately before and on 28 July 2005.
5
      (3)
Condition B is that the contract—
(a)
was not a derivative contract immediately before that date, but
(b)
apart from this paragraph, would have been a derivative contract on
that date if an accounting period of the company began on that date.
      (4)
Condition C is that the contract was a chargeable asset immediately before
10
that date.
      (5)
The relevant contract is treated for the purposes of Part 7 of this Act as a
derivative contract entered into by the company on 28 July 2005 for
consideration of an amount equal to the fair value of the contract on that
date.
15
      (6)
If the company ceases to be a party to the contract, it must bring into account
for the accounting period in which it so ceases the amount of any chargeable
gain or allowable loss which would have been treated as accruing to it on the
assumptions in sub-paragraph (7).
      (7)
Those assumptions are that—
20
(a)
the company disposed of the contract immediately before 28 July
2005, and
(b)
the disposal was for consideration of an amount equal to the fair
value of the contract on that date.
Plain vanilla contracts which became derivative contracts before 30 December 2006
25
93    (1)
This paragraph applies if—
(a)
a company is a party to a plain vanilla contract which (not having
been a derivative contract) became a derivative contract before 30
December 2006,
(b)
the company disposes of the derivative contract by ceasing to be a
30
party to it, and
(c)
paragraphs 91 and 92 do not apply in relation to the contract.
      (2)
Section 699(1) (priority of this Part for corporation tax purposes) does not
apply for the purpose of calculating any chargeable gain accruing to the
company on the disposal.
35
      (3)
For the purpose of calculating any chargeable gain accruing to the company
on the disposal, the sums allowable as a deduction under section 38(1)(a) of
TCGA 1992 (acquisition costs) are—
(a)
if G exceeds L, increased by the amount of that excess,
(b)
if L exceeds G, reduced by the amount of that excess.
40
      (4)
If the amount of the excess in sub-paragraph (3)(b) is greater than the
amount of the expenditure allowable under section 38(1)(a) of TCGA 1992,
the amount of the excess which cannot be deducted from the expenditure so
allowable is, for the purpose mentioned in sub-paragraph (3), added to the
consideration for the disposal.
45

Corporation Tax Bill
Schedule 2 — Transitionals and savings
Part 10 — Derivative contracts
766

      (5)
In this paragraph—
G is the sum of the credits brought into account under section 574 of
this Act (non-trading credits and debits to be brought into account
under Part 5) in respect of the derivative contract in each relevant
accounting period, and
5
L is the sum of the debits brought into account under that section in
respect of the derivative contract in each such period.
      (6)
In sub-paragraph (5) “relevant accounting period” means—
(a)
the accounting period in which the disposal is made, or
(b)
any previous accounting period.
10
Issuers of securities with embedded derivatives: deemed options
94    (1)
This paragraph applies if the company mentioned in section 652(1) was a
party to the debtor relationship mentioned in section 652(2) immediately
before its first accounting period to begin on or after 1 January 2005.
      (2)
Section 653 (shares issued or transferred as a result of exercise of deemed
15
option) does not apply.
      (3)
If section 654(2) (payment instead of disposal on exercise of deemed option)
applies—
(a)
CV is taken to be nil, and
(b)
an allowable loss of an amount equal to X is treated as accruing to the
20
company in the accounting period mentioned in section 654(2).
      (4)
Section 655 (ceasing to be party to debtor relationship when deemed option
not exercised) does not apply.
Contract becoming derivative contract on 12 March 2008
95    (1)
This paragraph applies if a company was, immediately before 12 March
25
2008, a party to a relevant contract which became a derivative contract by
virtue of the amendments made by paragraph 20 of Schedule 22 to FA 2008.
      (2)
The contract is to be regarded for the purposes of Part 7 as having been
entered into by the company on 12 March 2008 for consideration of an
amount equal to its notional carrying value (within the meaning of section
30
622) on that date.
Avoidance relying on continuity of treatment provisions: transactions before 16 May 2008
96
Section 629 (disapplication of section 625 where transferor party to
avoidance involving subsequent transfer by transferee) does not have effect
in relation to transactions taking place, or a series of transactions of which
35
the first takes place, before 16 May 2008.
Disposals for consideration not fully recognised by accounting practice: disposals before 16
May 2008
97
Section 698 (disposals for consideration not fully recognised by accounting
practice) does not have effect in relation to disposals before 16 May 2008.
40

Corporation Tax Bill
Schedule 2 — Transitionals and savings
Part 11 — Intangible fixed assets
767

References to Companies Act 2006
98
Until section 658 of the Companies Act 2006 (c. 46) (rule against limited
company acquiring own shares) comes into force, references to that section
in sections 674(3)(g)(ii) and 682(6)(b) have effect as if they were references to
section 143 of the Companies Act 1985 (c. 6).
5
Repeal of provisions concerning exchange gains and losses from derivative contracts
99    (1)
The following provisions of this Act (which rewrite provisions prospectively
repealed by F(No.2)A 2005) cease to have effect—
(a)
section 606 (exchange gains and losses), and
(b)
in section 690(6) (derivative contracts for unallowable purposes) the
10
words from “which are” to the end.
      (2)
For the power to make an order bringing this paragraph into force, see
section 1329(3).
Part 11
Intangible fixed assets
15
Transactions between related parties
100   (1)
Sub-paragraphs (2) and (3) apply in relation to any accounting period that
began before 12 March 2008 and ends after 31 March 2009.
      (2)
For the purposes of section 835(7) to (9)—
(a)
so much of the period as falls before 12 March 2008 is treated as an
20
accounting period, and
(b)
so much of the period as falls on or after that date is treated as a
separate accounting period.
      (3)
Section 835(7) to (9) only has effect in relation to the credits and debits to be
brought into account for the accounting period mentioned in sub-paragraph
25
(2)(b).
      (4)
Section 835(7) to (9) does not apply for the purposes of determining whether
a party was a related party in relation to a company at a time before 12
March 2008.
      (5)
For the purposes of sections 845 to 849 (transactions between related parties:
30
transfers treated as being at market value) as they apply otherwise than for
determining the credits and debits to be brought into account under Part 8,
section 835(7) to (9) only has effect in relation to transfers of assets made on
or after 12 March 2008.
      (6)
For the purposes of sections 845 to 849 as they apply otherwise than for
35
determining the debits or credits to be brought into account under Part 8, in
relation to any transfer made before 16 March 2005 section 835 (“related
party”) applies with the omission of subsection (5)(b).
      (7)
Sections 847 (transfers involving other taxes) and 849 (transfers involving
gifts of business assets) do not have effect in relation to any transfer of assets
40
made before 16 March 2005.

Corporation Tax Bill
Schedule 2 — Transitionals and savings
Part 12 — Beneficiaries’ income from estates in administration
768

Continuity: formation of an SE before 1 April 2005
101
Section 770 (continuity where group includes an SE) does not apply in
relation to the formation of an SE (including its formation by
transformation) which occurs before 1 April 2005.
References to Companies Act 2006
5
102
Until section 658 of the Companies Act 2006 (c. 46) (rule against limited
company acquiring own shares) comes into force, references to that section
in sections 819(3)(f)(ii) and 821(5)(b) have effect as if they were references to
section 143 of the Companies Act 1985 (c. 6).
Part 12
10
Beneficiaries’ income from estates in administration
Basic amounts
103   (1)
Sub-paragraph (2) applies if any previous accounting period to which
regard is to be had for the purposes of section 948 (assumed income
entitlement) is an accounting period ending before 1 April 2009 (an “old
15
accounting period”).
      (2)
In relation to the old accounting period, the reference in Step 4 in subsection
(1) of that section to basic amounts relating to the person’s absolute interest
in respect of which the company was liable to corporation tax for that period
is to be taken as a reference to the amount deemed to have been paid to that
20
company as income for that period in respect of that interest by virtue of
section 696 of ICTA.
      (3)
Sub-paragraph (4) applies if one or more of the absolute interests referred to
in section 954(1) (successive absolute interests) was held in one or more old
accounting periods.
25
      (4)
The reference in section 954(2)(b) to the basic amounts relating to any
previous such interest includes a reference to the amounts deemed to have
been paid to the previous holder as income for old accounting periods in
respect of that interest by virtue of section 696 of ICTA.
      (5)
Sub-paragraph (6) applies if any of the limited interests referred to in section
30
955(1)(d) (successive interests: assumed income entitlement of holder of
absolute interest following limited interest) was held in one or more old
accounting periods.
      (6)
The reference in section 955(4) to the basic amounts relating to any previous
such interest includes a reference to the amounts deemed to have been paid
35
to the holders of any such interests as income for old accounting periods in
respect of those interests by virtue of section 695 of ICTA.
      (7)
In the case of a UK estate, references in this paragraph to the amounts
deemed to have been paid are references to the amounts that would be
deemed to have been paid apart from sections 695(4)(a) and 696(4) of ICTA
40
(grossing up).

Corporation Tax Bill
Schedule 2 — Transitionals and savings
Part 13 — Relief for share incentive plans
769

Income treated as bearing income tax
104   (1)
A sum treated as part of the aggregate income of an estate by virtue of
section 547(1)(c) of ICTA (gains from life insurance contracts etc) as the
result of an event that occurred before 6 April 2004 is treated for the
purposes mentioned in section 963(1) of this Act as bearing income tax by
5
deduction at the basic rate (as defined in section 832(1) of ICTA at the time
the event occurred).
      (2)
A sum treated as part of the aggregate income of an estate by virtue of
section 547(1)(c) or 701(8)(e) of ICTA (gains from life insurance contracts etc)
as the result of an event that occurred on or after 6 April 2004 and before 6
10
April 2007 is treated for the purposes mentioned in section 963(1) of this Act
as bearing income tax by deduction at the lower rate (as defined in section
832(1) of ICTA at the time the event occurred).
      (3)
A sum treated as part of the aggregate income of an estate by virtue of
section 547(1)(c) or 701(8)(e) of ICTA (gains from life insurance contracts etc)
15
as the result of an event that occurred on or after 6 April 2007 and before 6
April 2008 is treated for the purposes mentioned in section 963(1) of this Act
as bearing income tax at the savings rate (as defined in section 989 of ITA
2007 at the time the event occurred).
      (4)
If sub-paragraph (2) or (3) applies section 962(3) applies as if the following
20
paragraph were inserted after paragraph (a)—
“(aa)
income bearing income tax at the lower rate (as defined in
section 832(1) of ICTA at the time the event as a result of
which the income arose occurred) or bearing income tax at
the savings rate (as defined in section 989 of ITA 2007 at the
25
time that event occurred),”.
Part 13
Relief for share incentive plans
Deduction for contribution to plan trust
105
Section 989(1)(a) does not apply in relation to a payment made before 6 April
30
2003.
Award of shares to excluded employee
106   (1)
This paragraph applies if an amount is received by a company under section
992 as a result of shares having been awarded to an excluded employee in
an accounting period that ends before 1 April 2009.
35
      (2)
Section 986 does not apply in relation to the amount.
      (3)
The amount is treated as a trading receipt of the company for the period of
account in which the shares were awarded to the excluded employee.

Corporation Tax Bill
Schedule 2 — Transitionals and savings
Part 15 — Research and development
770

Part 14
Other relief for employee share acquisitions
Accounting periods beginning before 1 January 2003
107   (1)
Relief is not available under Part 12 in relation to shares acquired so far as a
deduction is available or has been made in relation to relevant expenses in
5
calculating the chargeable profits of the employing company or any other
company for corporation tax purposes for an accounting period beginning
before 1 January 2003.
      (2)
“Relevant expenses” means any expenses referable, directly or indirectly, to
the provision of the shares acquired.
10
Restricted shares not to include shares acquired before 16 April 2003
108
In Part 12 “restricted shares” does not include shares acquired before 16
April 2003.
Shares acquired before 16 April 2003 that are subject to forfeiture
109   (1)
Relief under Part 12 is not available in relation to shares acquired before 16
15
April 2003 that are subject to forfeiture.
      (2)
“Subject to forfeiture” is to be read in accordance with paragraph 19 of
Schedule 23 to FA 2003 as originally enacted.
      (3)
Accordingly, Schedule 23 to FA 2003 continues to apply in relation to such
shares (despite the repeal by this Act of that Schedule or of any provision
20
modifying, or affecting the application of, that Schedule).
Meaning of “employment” for times before 16 April 2003
110
In relation to any time before 16 April 2003, Part 12 applies as if section
1002(2) were omitted.
Relief under Chapters 4 and 5 of Part 12
25
111   (1)
This paragraph applies for the purposes of Chapters 4 and 5 of Part 12 in
their application in relation to shares or other securities acquired during an
accounting period that ends before 1 April 2009.
      (2)
In accordance with Part 1 of this Schedule (continuity of law), references to
relief under Chapter 2 or 3 of Part 12 are to be read as references to relief
30
under Schedule 23 to FA 2003 (as that Schedule applied when the shares or
other securities were acquired) available on the acquisition.
Part 15
Research and development
Rates of relief
35
112   (1)
In relation to expenditure incurred before 1 August 2008, Part 13 has effect
with the following modifications.