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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
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