Corporation Tax Bill - continued          House of Commons

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Clause 885: Certain other internally-generated assets: time of creation

2246.     This clause gives a special rule defining when internally-generated assets (other than goodwill) not qualifying for capital allowances, are created for the purposes of clause 882. It is based on paragraph 122 of Schedule 29 to FA 2002.

Clause 886: Assets representing production expenditure on films: time of creation

2247.     This clause gives a special rule defining when an asset representing production expenditure on films is treated as created for the purposes of clause 882. It is based on section 51(2) of FA 2006.

Clause 887: General rule

2248.     This clause gives a general rule to define when expenditure on acquisition of an asset is incurred for the purposes of clause 883 and, ultimately, clause 882. It is based on paragraph 123 of Schedule 29 to FA 2002.

2249.     The general rule in subsection (1) is subject to two qualifications to which subsection (2) gives a signpost and which limit any conflict with pre-FA 2002 timing rules for capital gains and capital allowances.

Clause 888: Cases where chargeable gains rule applies

2250.     This clause qualifies the rule in clause 887 in respect of certain expenditure that would not have qualified for any form of tax relief under the pre-FA 2002 law. It is based on paragraph 124 of Schedule 29 to FA 2002.

2251.     Goodwill is an example of an asset potentially within this rule.

2252.     If the expenditure does not fall within subsection (1)(c) (that is, it would have been treated as incurred on or after 1 April 2002 for capital gains purposes) this clause is not in point and the general rule in clause 887 applies to the expenditure.

Clause 889: Cases where capital allowances general rule applies

2253.     This clause qualifies the rule in clause 887 in respect of certain expenditure that would, before FA 2002, have qualified for relief under the capital allowances provisions. It is based on paragraph 125 of Schedule 29 to FA 2002.

2254.     A patent is an example of an asset potentially within this rule.

2255.     This clause replicates the general rule for capital allowances in section 5 of CAA.

Clause 890: Fungible assets: application of section 858

2256.     This clause provides for separate pools of fungible assets in order that expenditure on them after 1 April 2002 can come within this Part. It is based on paragraph 126 of Schedule 29 to FA 2002.

2257.     This and the next clause complement clause 858 which treats fungible assets held by the same person in the same capacity as indistinguishable parts of a single asset. An example of a fungible asset is a milk quota which grows or diminishes as additional assets of the same kind are acquired or realised. So successive acquisitions are treated as increasing the size of the single asset, whereas a disposal of some, but not all, of the units comprising the single asset is treated as a part realisation.

2258.     The general principle of the intangible fixed assets rules is that only expenditure on or after 1 April 2002 should come within the regime. But without further rules this would not be achieved for fungible assets. If fungible assets of a particular kind are held by a company before 1 April 2002 any additional assets of that kind acquired subsequently would fail the time test in clause 882 because the acquisitions would be regarded as merely enlarging an existing single asset.

2259.     The separate pool approach of this clause enables the time test in clause 882 to be satisfied by fungible assets acquired on or after 1 April 2002 which are additions to assets of the same kind.

Clause 891: Realisation and acquisition of fungible assets

2260.     This clause gives identification rules for transactions involving fungible assets treated as comprising separate pools under the previous clause. It is based on paragraph 126 of Schedule 29 to FA 2002.

2261.     Identification rules are necessary to determine which of the two pools a transaction in fungible assets diminishes or expands. And they are also necessary because the nature of fungible assets is such that it could often be relatively easy to dispose of an asset of this kind held before 1 April 2002 and replace it immediately afterwards with a newly acquired, identical asset. The intangible fixed assets rules are not intended to apply to assets “recycled” in this way.

Clause 892: Certain assets acquired on transfer of business

2262.     This clause preserves symmetry of tax treatment between the intangible fixed assets rules and the capital gains rules on certain transfers of intangible fixed assets that are outside the intangible fixed assets regime. It is based on paragraph 127 of Schedule 29 to FA 2002.

2263.     The capital gains provisions listed in subsection (2) allow a no gain/no loss treatment on the transferor of an intangible asset to a transferee who is not a related party. Without a special rule, in the circumstances described in subsection (1), the asset transferred would be within this Part in the hands of the transferee and carry an acquisition cost based on the “fair value” of the asset in the accounts of the transferee. This could result in relief under this Part being available on a sum that was not liable to tax in the hands of the transferor.

2264.     To avoid this mismatch between the treatment of the transferor and the transferee, this clause ensures that the asset transferred in these circumstances is excluded from this Part in the hands of the transferee as well as the transferor. The asset remains within the capital gains rules in the hands of the transferee, with an acquisition cost equal to the transferor’s disposal value.

Clause 893: Assets whose value derives from pre-FA 2002 assets

2265.     This clause excludes certain assets from the intangible fixed assets rules to the extent that they derive their value from excluded assets. It is based on paragraph 127A of Schedule 29 to FA 2002.

2266.     Subsection (1)(e) introduces a new term (“the preserved status conditions”) to refer to the conditions set out in clause 894.

Clause 894: The preserved status conditions etc

2267.     This clause defines a key term in the previous clause. It is based on paragraph 127A of Schedule 29 to FA 2002.

Clause 895: Assets acquired in connection with disposals of pre-FA 2002 assets

2268.     This clause excludes certain assets from the intangible fixed assets rules if acquired from a related party in connection with the disposal of other excluded assets. It is based on paragraph 127B of Schedule 29 to FA 2002.

Clause 896: Application to royalties

2269.     This clause brings royalties within the intangible fixed assets regime. It is based on paragraph 119 of Schedule 29 to FA 2002.

2270.     This clause rewrites only those parts of paragraph 119 of Schedule 29 to FA 2002 which have enduring effect and are not transitional.

2271.     Paragraph 119(2) to (4) of Schedule 29 to FA 2002 ensures the correct tax treatment of royalties during the transitional period spanning 1 April 2002. They are spent and are not rewritten.

Clause 897: Application to pre-FA 2002 assets consisting of telecommunication rights

2272.     This clause brings certain telecommunication rights within the intangible fixed assets regime. It is based on paragraph 128 of Schedule 29 to FA 2002.

2273.     Subsection (2) ensures that the intangible fixed assets rules work properly for telecommunication rights dealt with under a previous special tax regime.

2274.     Paragraph 128(4) of Schedule 29 to FA 2002 is spent and is not rewritten.

Clause 898: Relief where assets disposed of on or after 1 April 2002

2275.     This clause extends roll-over relief under Chapter 7 of this Part to the disposal of certain intangible fixed assets otherwise remaining within the capital gains rules. It is based on paragraph 130 of Schedule 29 to FA 2002.

2276.     The effect of this clause is that the “amount available for relief” (in clause 758(1)) reduces the company’s consideration received for the existing asset for the purposes of the capital gains rules and the tax cost of the new asset.

Clause 899: Relief where degrouping charge on asset arises on or after 1 April 2002

2277.     This clause extends roll-over relief under Chapter 7 of this Part to the deemed disposal of certain intangible fixed assets otherwise remaining within the capital gains rules. It is based on paragraph 131 of Schedule 29 to FA 2002.

2278.     It applies when a capital gains degrouping charge under section 179 of TCGA arises on the deemed disposal of intangible fixed assets which would have come within the intangible fixed assets rules had they not been pre-FA 2002 assets and when the event triggering the degrouping charge is on or after 1 April 2002.

2279.     The effect of this clause is that the “amount available for relief” (in clause 758(1)) reduces the company’s consideration deemed received for the pre-FA 2002 asset for the purposes of the capital gains rules and the tax cost of the new asset.

Clause 900: Meaning of “chargeable asset within TCGA” in sections 898 and 899

2280.     This clause defines the key term used in the two preceding clauses. It is based on paragraph 130 of Schedule 29 to FA 2002.

2281.     Subsection (3) substitutes a cross-reference to section 10B of TCGA for the cross-reference to section 10(3) of TCGA in the source legislation. Section 10(3) was repealed in FA 2003 and replaced by section 10B. The substitution in this clause reflects the implied substitution by section 17(2)(a) of the Interpretation Act 1978 and so preserves the effect of the source legislation.

Chapter 17: Insurance companies

Overview

2282.     The clauses in this Chapter rewrite a small number of provisions in Schedule 29 of FA 2002 that apply only to insurance companies.

Clause 901: Effect of application of the I minus E basis: non-trading amounts

2283.     This clause ensures that credits and debits referable to life assurance business are taxed in a way consistent with the I minus E basis. It is based on paragraph 36 of Schedule 29 to FA 2002.

Clause 902: Excluded assets

2284.     This clause gives particular excluded asset rules that apply to an insurance company with life assurance business. It is based on paragraph 78 of Schedule 29 to FA 2002.

Clause 903: Elections to exclude capital expenditure on computer software

2285.     This clause extends the right to elect under clause 815 for exclusion of capital expenditure on computer software to insurance companies with life assurance business. It is based on paragraph 83 of Schedule 29 to FA 2002.

Clause 904: Transfers of life assurance business: transfers of assets treated as tax-neutral

2286.     This clause allows the tax-neutral transfer of intangible fixed assets within the rules in this Part where those assets are included in certain transfers of life assurance business between insurance companies. It is based on paragraph 89 of Schedule 29 to FA 2002.

Clause 905: Pre-FA 2002 assets: Lloyd’s syndicate capacity

2287.     This clause integrates intangible fixed assets within the income regime syndicate capacity rules in FA 1994 into the intangible fixed assets rules in this Part. It is based on paragraph 129 of Schedule 29 to FA 2002.

Chapter 18: Priority rules

Clause 906: Priority of this Part for corporation tax purposes

2288.     This clause states the priority of the provisions in this Part over other tax rules. It is based on paragraph 1(3) of Schedule 29 to FA 2002.

 
 
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Prepared: 5 December 2008