House of Commons
Session 2008-09
Publications on the internet
Other Bills before Parliament
Bill Home Page

Corporation Tax Bill


 

These notes refer to the Corporation Tax Bill as introduced to the House of Commons on 4 December 2008

CORPORATION TAX BILL


EXPLANATORY NOTES - VOLUME 2

(SECTIONS 477 TO 906)

TABLE OF CONTENTS

Part 6: Relationships treated as loan relationships etc     12

Chapter 1: Introduction     12

Clause 477: Overview of Part     12

Chapter 2: Relevant non-lending relationships     12

Clause 478: Relevant non-lending relationships: introduction     12

Clause 479: Relevant non-lending relationships not involving discounts     12

Clause 480: Relevant non-lending relationships involving discounts     12

Clause 481: Application of Part 5 to relevant non-lending relationships     12

Clause 482: Miscellaneous rules about amounts to be brought into account because of this Chapter     12

Clause 483: Exchange gains and losses: amounts treated as money debts     13

Clause 484: Provision not at arm’s length: meaning of “interest” and “money debt”     13

Clause 485: Exclusion of debts where profits or losses within Part 7 or 8     13

Clause 486: Exclusion of exchange gains and losses in respect of tax debts etc     13

Chapter 3: OEICs, unit trusts and offshore funds     13

Clause 487: Overview of Chapter     13

Clause 488: Meaning of “open-ended investment company” etc     13

Clause 489: Meaning of “offshore fund” etc     14

Clause 490: Holdings in OEICs, unit trusts and offshore funds treated as creditor relationship rights     14

Clause 491: Holding coming within section 490: opening valuations     14

Clause 492: Disregard of investments made and liabilities incurred with avoidance intention etc     14

Clause 493: The qualifying investments test     15

Clause 494: Meaning of “qualifying investments”     15

Clause 495: Qualifying holdings     16

Clause 496: Meaning of “hedging relationship”     16

Clause 497: Power to change investments that are qualifying investments     16

Chapter 4: Building societies     17

Clause 498: Building society dividends and interest     17

Chapter 5: Industrial and provident societies     17

Clause 499: Industrial and provident society payments treated as interest under loan relationship     17

Clause 500: Exclusion of interest where failure to make return     17

Chapter 6: Alternative finance arrangements     17

Clause 501: Introduction to Chapter     18

Clause 502: Meaning of “financial institution”     18

Clause 503: Purchase and resale arrangements     18

Clause 504: Diminishing shared ownership arrangements     18

Clause 505: Deposit arrangements     19

Clause 506: Profit share agency arrangements     19

Clause 507: Investment bond arrangements     19

Clause 508: Provision not at arm’s length: exclusion of arrangements from sections 503 to 507     19

Clause 509: Application of Part 5: general     19

Clause 510: Application of Part 5 to particular alternative finance arrangements     19

Clause 511: Purchase and resale arrangements     20

Clause 512: Diminishing shared ownership arrangements     20

Clause 513: Other arrangements     20

Clause 514: Exclusion of alternative finance return from consideration for sale of assets     20

Clause 515: Diminishing shared ownership arrangements not partnerships     20

Clause 516: Treatment of principal under profit sharing agency arrangements     21

Clause 517: Treatment of bond-holder under investment bond arrangements     21

Clause 518: Investment bond arrangements: treatment as securities     21

Clause 519: Investment bond arrangements: other provisions     21

Clause 520: Provision not at arm’s length: non-deductibility of relevant return     21

Clause 521: Power to extend this Chapter to other arrangements     21

Chapter 7: Shares with guaranteed returns etc     21

Clause 522: Introduction to Chapter     22

Clause 523: Application of Part 5 to certain shares as rights under creditor relationship     22

Clause 524: Shares subject to outstanding third party obligations     22

Clause 525: Meaning of “interest-like investment”     22

Clause 526: Non-qualifying shares     22

Clause 527: The increasing value condition     22

Clause 528: Regulations about income-producing assets     22

Clause 529: The redemption return condition     22

Clause 530: The redemption return condition: excepted shares     23

Clause 531: The redemption return condition: unallowable purposes     23

Clause 532: The associated transactions condition     23

Clause 533: Power to change conditions for non-qualifying shares     23

Clause 534: Amounts to be brought into account where section 523 applies     23

Clause 535: Shares ceasing to be shares to which section 523 applies     23

Chapter 8: Returns from partnerships     24

Clause 536: Introduction to Chapter     24

Clause 537: Payments in return for capital contribution to partnership     24

Clause 538: Change of partnership shares     24

Chapter 9: Manufactured interest etc     24

Clause 539: Introduction to Chapter     24

Clause 540: Manufactured interest treated as interest under loan relationship     24

Clause 541: Debits for deemed interest under stock lending arrangements disallowed     25

Chapter 10: Repos     25

Clause 542: Introduction to Chapter     25

Clause 543: Meaning of creditor repo     25

Clause 544: Meaning of creditor quasi-repo     25

Clause 545: Ignoring effect on lender etc of sale of securities     25

Clause 546: Charge on lender for finance return in respect of the advance     26

Clause 547: Repo under arrangement designed to produce quasi-interest: tax avoidance     26

Clause 548: Meaning of debtor repo     26

Clause 549: Meaning of debtor quasi-repo     26

Clause 550: Ignoring effect on borrower of sale of securities     26

Clause 551: Relief for borrower for finance charges in respect of the advance     26

Clause 552: General provisions about arrangements     27

Clause 553: Persons buying or selling for others     27

Clause 554: Power to modify this Chapter     27

Clause 555: Cases where section 554 applies: non-standard repos     27

Clause 556: Meaning of securities and similar securities     27

Clause 557: Meaning of person receiving an asset     27

Clause 558: Interpretation of accounting expressions     27

Clause 559: Minor definitions     27

Chapter 11: Investment life insurance contracts     27

Clause 560: Introduction to Chapter     27

Clause 561: Meaning of “investment life insurance contract”     28

Clause 562: Contract to be loan relationship     28

Clause 563: Increased non-trading credits for BLAGAB and EEA taxed contracts     28

Clause 564: Section 563: interpretation     28

Clause 565: Relevant amount where the relevant company uses fair value accounting     28

Clause 566: Introduction     29

Clause 567: Gains on deemed surrenders to be brought into account on related transactions     29

Clause 568: Restriction on credits on old contracts: fair value accounting cases     29

Clause 569: Restriction on debits on old contracts: non-fair value accounting cases     29

Part 7: Derivative contracts     30

Chapter 1: Introduction     31

Clause 570: Overview of Part     31

Clause 571: General rule: profits chargeable as income     31

Clause 572: Profits and losses to be calculated using credits and debits given by this Part     31

Clause 573: Trading credits and debits to be brought into account under Part 3     31

Clause 574: Non-trading credits and debits to be brought into account under Part 5     32

Chapter 2: Contracts to which this Part applies     32

Clause 575: Overview of Chapter     32

Clause 576: “Derivative contract”     32

Clause 577: “Relevant contract”     33

Clause 578: Relevant contracts of a company and being party to such contracts     33

Clause 579: The accounting conditions     33

Clause 580: “Option”     34

Clause 581: “Future”     34

Clause 582: “Contract for differences”     35

Clause 583: “Underlying subject matter”     35

Clause 584: Hybrid derivatives with embedded derivatives     36

Clause 585: Loan relationships with embedded derivatives     36

Clause 586: Other contracts with embedded derivatives     37

Clause 587: Contract relating to holding in OEIC, unit trust or offshore fund     37

Clause 588: Associated transaction treated as derivative contract     38

Clause 589: Contracts excluded because of underlying subject matter: general     39

Clause 590: Disregard of subordinate or small value underlying subject matter     40

Clause 591: Conditions A to E mentioned in section 589(5)     40

Clause 592: Embedded derivatives treated as meeting condition in section 591 etc     42

Clause 593: Contracts where part of underlying subject matter is excluded property     43

Chapter 3: Credits and debits to be brought into account: general     43

Clause 594: Overview of Chapter     43

Clause 595: General principles about the bringing into account of credits and debits     43

Clause 596: Meaning of “related transaction”     44

Clause 597: Amounts recognised in determining a company’s profit or loss     44

Clause 598: Regulations about recognised amounts     44

Clause 599: Meaning of “amounts recognised for accounting purposes”     45

Clause 600: Contract which is or forms part of financial asset or liability     45

Clause 601: Contract relating to holding in OEIC, unit trust or offshore fund     45

Clause 602: Contract becoming one relating to holding in OEIC, unit trust or offshore fund     46

Clause 603: Associated transaction treated as derivative contract     46

Clause 604: Credits and debits treated as relating to capital expenditure     46

Clause 605: Credits and debits recognised in equity     47

Clause 606: Exchange gains and losses     47

Clause 607: Pre-contract or abortive expenses     48

Clause 608: Company ceasing to be party to derivative contract     48

Clause 609: Company ceasing to be UK resident     49

Clause 610: Non-UK resident company ceasing to hold derivative contract for UK permanent establishment     49

Clause 611: Release under statutory insolvency arrangement of liability under derivative contract     50

Chapter 4: Further provision about credits and debits to be brought into account     50

Clause 612: Overview of Chapter     50

Clause 613: Introduction to sections 614 and 615     50

Clause 614: Change of accounting policy involving change of value     51

Clause 615: Change of accounting policy after ceasing to be party to derivative contract     51

Clause 616: Disapplication of fair value accounting     52

Clause 617: Election for section 616 not to apply     53

Clause 618: Elections under section 617: groups of companies     54

Clause 619: Partnerships involving companies     55

Clause 620: Determination of credits and debits by company partners     55

Clause 621: Company partners using fair value accounting     55

Clause 622: Contracts ceasing to be derivative contracts     55

Clause 623: Index-linked gilt-edged securities with embedded contracts for differences     56

Chapter 5: Continuity of treatment on transfers within groups     56

Clause 624: Introduction to Chapter     56

Clause 625: Group member replacing another as party to derivative contract     56

Clause 626: Transactions to which section 625 applies     57

Clause 627: Meaning of company replacing another as party to derivative contract     57

Clause 628: Transferor using fair value accounting     58

Clause 629: Tax avoidance     58

Clause 630: Introduction to sections 631 and 632     58

Clause 631: Transferee leaving group otherwise than because of exempt distribution     59

Clause 632: Transferee leaving group because of exempt distribution     59

Chapter 6: Special kinds of company     60

Clause 633: Mutual trading companies     60

Clause 634: Insurance companies     60

Clause 635: Creditor relationships: embedded derivatives which are options     60

Clause 636: Modifications of Chapter 5     60

Clause 637: Investment trusts: profits or losses of a capital nature     61

Clause 638: Venture capital trusts: profits or losses of a capital nature     62

Chapter 7: Chargeable gains arising in relation to derivative contracts     62

Clause 639: Overview of Chapter     62

Clause 640: Credits and debits not to be brought into account under Part 5     63

Clause 641: Derivative contracts to be taxed on a chargeable gains basis     63

Clause 642: Exception from section 641     64

Clause 643: Contracts relating to land or certain tangible movable property     64

Clause 644: Income to be left out of account in determining whether section 643 applies     64

Clause 645: Creditor relationships: embedded derivatives which are options     65

Clause 646: Exclusions from section 645     65

Clause 647: Meaning of certain expressions in section 645     66

Clause 648: Creditor relationships: embedded derivatives which are exactly tracking contracts for differences     66

Clause 649: Meaning of certain expressions in section 648     67

Clause 650: Property based total return swaps     67

Clause 651: Credits and debits not to be brought into account under Part 3 or Part 5     67

Clause 652: Introduction to sections 653 to 655     68

Clause 653: Shares issued or transferred as a result of exercise of deemed option     68

Clause 654: Payment instead of disposal on exercise of deemed option     69

Clause 655: Ceasing to be party to debtor relationship when deemed option not exercised     69

Clause 656: Introduction to section 658     69

Clause 657: Meaning of “exactly tracking contract” in section 656     70

Clause 658: Chargeable gain or allowable loss treated as accruing     70

Clause 659: Meaning of “relevant credits” and “relevant debits”     71

Chapter 8: Further provision about chargeable gains and derivative contracts     71

Clause 660: Contract relating to holding in OEIC, unit trust or offshore fund     71

Clause 661: Contract which becomes derivative contract     72

Clause 662: Contracts ceasing to be derivative contracts     72

Clause 663: Contracts to which section 641 applies     73

Clause 664: Meaning of certain expressions in section 663     73

Clause 665: Introduction to section 666     73

Clause 666: Allowable loss treated as accruing     74

Clause 667: Shares acquired on exercise of non-embedded option     74

Clause 668: Shares acquired on running of future to delivery     75

Clause 669: Meaning of G and L in sections 667 and 668     75

Clause 670: Treatment of net gains and losses on exercise of option     76

Clause 671: Meaning of G, L and CV in section 670     77

Clause 672: Treatment of net gains and losses on disposal of certain embedded derivatives     77

Clause 673: Meaning of G, L and CV in section 672     77

Chapter 9: European cross-border transfers of business     77

Clause 674: Introduction to Chapter     78

 
Bill Home page continue
 
House of Commons home page Houses of Parliament home page House of Lords home page search Page enquiries ordering index

© Parliamentary copyright 2008
Prepared: 5 December 2008