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Corporation Tax Bill


Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 3 — The credits and debits to be brought into account: general

146

 

327     

Disallowance of imported losses etc

(1)   

This section applies for an accounting period of a company (“the loss period”)

if—

(a)   

apart from this section, a loss arising in connection with a loan

relationship of the company would fall to be brought into account for

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the purposes of this Part, and

(b)   

the loss is wholly or partly referable to a time when the relationship was

not subject to United Kingdom taxation.

(2)   

The amounts brought into account for the loss period for the purposes of this

Part must be such as to secure that none of the loss referable to a time when the

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relationship was not so subject is treated for those purposes as arising in the

loss period or any other accounting period of the company.

(3)   

For the purposes of this section a loss is referable to a time when a relationship

is not subject to United Kingdom taxation so far as, at the time to which the loss

is referable, the company would not have been chargeable to corporation tax in

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the United Kingdom on any profits arising from the relationship.

(4)   

If the company was not a party to the relationship at the time to which the loss

is referable, subsection (3) applies as if the reference to the company were a

reference to the person who at that time was in the same position as respects

the relationship as is subsequently held by the company.

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(5)   

An amount which would be brought into account for the purposes of this Part

in respect of any matter apart from this section is treated for the purposes of

section 464(1) (amounts brought into account under this Part excluded from

being otherwise brought into account) as if it were so brought into account.

(6)   

Accordingly, that amount must not be brought into account for corporation tax

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purposes as respects that matter either under this Part or otherwise.

(7)   

This section does not apply if fair value accounting is used.

Exchange gains and losses

328     

Exchange gains and losses

(1)   

The reference in section 307(3) to the profits and losses arising to a company

30

from its loan relationships and related transactions includes a reference to

exchange gains and losses so arising.

(2)   

But subsection (1) is subject to subsections (3) and (4).

(3)   

Subsection (1) does not apply to an exchange gain or loss of a company so far

as—

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(a)   

it arises—

(i)   

in relation to an asset or liability representing a loan

relationship of the company, or

(ii)   

as a result of the translation from one currency to another of the

profit or loss of part of the company’s business, and

40

(b)   

it is recognised in the company’s statement of total recognised gains

and losses, statement of recognised income and expense, statement of

changes in equity or statement of income and retained earnings.

 
 

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 3 — The credits and debits to be brought into account: general

147

 

(4)   

Subsection (1) does not apply to so much of an exchange gain or loss arising to

a company in relation to an asset or liability representing a loan relationship of

the company as is within a description specified for the purpose in regulations

made by the Treasury.

(5)   

The Treasury may by regulations make provision for or in connection with

5

bringing into account in specified circumstances amounts to which subsection

(1) does not apply because of subsection (3) or (4).

(6)   

The reference in subsection (5) to bringing amounts into account is a reference

to bringing amounts into account for the purposes of this Part as credits or

debits arising to a company from its loan relationships.

10

(7)   

The regulations may—

(a)   

make different provision for different cases, and

(b)   

make provision subject to an election or to other specified conditions.

(8)   

For the meaning of references to exchange gains or losses from loan

relationships, see section 475.

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Pre-loan relationship, abortive and pre-trading expenses

329     

Pre-loan relationship and abortive expenses

(1)   

This section applies if—

(a)   

a company may enter into a loan relationship or related transaction but

has not yet done so,

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(b)   

it incurs any expenses for purposes connected—

(i)   

with entering into it, or

(ii)   

with giving effect to any obligation which might arise under it,

and

(c)   

had the company entered into the relationship or transaction, the

25

expenses would be expenses within section 307(3)(c).

(2)   

The expenses are treated as expenses in relation to which debits may be

brought into account in accordance with section 307(3) to the same extent as if

the company had entered into the relationship or transaction.

330     

Debits in respect of pre-trading expenditure

30

(1)   

This section applies if—

(a)   

a non-trading debit is given for an accounting period of a company for

the purposes of this Part, and

(b)   

within the period of 2 years beginning with the end of the period the

company makes an election for the purposes of this section in respect

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of the debit.

(2)   

The debit must not be brought into account for the purposes of this Part as a

non-trading debit for that period.

(3)   

Instead, if conditions A and B are met in respect of a trade, the debit—

(a)   

is treated for the purposes of this Part as if it were a debit for the

40

accounting period in which the company begins to carry on the trade,

and

 
 

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 3 — The credits and debits to be brought into account: general

148

 

(b)   

is to be brought into account in accordance with section 297(3) (trading

debits).

(4)   

Condition A is that the company begins to carry on the trade within the period

of 7 years after the end of the accounting period for which a non-trading debit

is given for the purposes of this Part.

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(5)   

Condition B is that that debit is such that, if it were given for the accounting

period in which the company begins to carry on the trade, it would be brought

into account by reference to that trade in accordance with section 297(3).

Company ceasing to be party to loan relationship

331     

Company ceasing to be party to loan relationship

10

(1)   

This section applies if—

(a)   

a company ceases to be a party to a loan relationship in an accounting

period (“the cessation period”),

(b)   

profits or losses arise to the company from the loan relationship in that

period, and

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(c)   

the credits or debits brought into account for the purposes of this Part

for that period do not include credits or debits representing the whole

of those profits or losses.

(2)   

Credits or debits in respect of so much of those profits or losses as are not

represented by credits or debits brought into account for the cessation period

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must continue to be brought into account under this Part over one or more

subsequent accounting periods (“post-cessation periods”) as in the case of a

loan relationship to which the company is a party in those periods.

(3)   

Subsection (4) applies if any question arises how far in a post-cessation

period—

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(a)   

the company is a party to the loan relationship—

(i)   

for the purposes of a trade it carries on, or

(ii)   

for any other particular purpose or purposes, or

(b)   

the loan relationship is referable to a particular business the company

carries on or a particular description of such business.

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(4)   

The question is to be determined by reference to the circumstances

immediately before the company ceased to be a party to the loan relationship,

instead of the circumstances in the post-cessation period.

(5)   

Subsection (6) applies if any question arises—

(a)   

how far the loan relationship has a particular purpose in a post-

35

cessation period, or

(b)   

whether there is a connection between the company and any other

person for a post-cessation period for the purposes of this Part.

(6)   

The question is to be determined by reference to the circumstances in the

cessation period instead of the circumstances in the post-cessation period.

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332     

Repo, stock lending and other transactions

(1)   

This section applies if—

 
 

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 3 — The credits and debits to be brought into account: general

149

 

(a)   

a company ceases to be a party to a loan relationship in any accounting

period, for example as a result of the disposal of the rights or liabilities

under the relationship under a repo or stock lending arrangement, but

(b)   

nonetheless, in accordance with generally accepted accounting

practice, amounts in respect of the relationship are recognised in

5

determining the profit or loss of the company for that or any

subsequent accounting period.

(2)   

Despite ceasing to be a party to the relationship, the company must bring

amounts in respect of the relationship into account for those periods for the

purposes of this Part.

10

(3)   

The amounts that must be so brought into account are those that are so

recognised in respect of the relationship (but subject to the provisions of this

Part, including, in particular, section 307(3)).

(4)   

This section does not apply in relation to any amount in respect of a loan

relationship which is brought into account for this Part as a result of—

15

(a)   

section 331 (company ceasing to be party to a loan relationship), or

(b)   

section 550 (ignoring effect on borrower of sale of securities: debtor

repos, debtor quasi-repos and other arrangements).

(5)   

Section 331(3) and (4) applies in relation to any time after the company ceases

to be a party to a loan relationship in a case where this section applies as it

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applies where section 331 applies.

Company moving abroad

333     

Company ceasing to be UK resident

(1)   

If a company ceases to be UK resident, this Part applies as if—

(a)   

immediately before so ceasing the company had assigned the assets

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and liabilities which represent its loan relationships for consideration

of an amount equal to their fair value at that time, and

(b)   

it had immediately reacquired them for consideration of the same

amount.

(2)   

Subsection (1) does not apply in relation to an asset or liability so far as

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immediately after the company ceases to be UK resident the asset is held or the

liability is owed for the purposes of a permanent establishment of the company

in the United Kingdom.

(3)   

Subsection (1) does not apply if—

(a)   

the conditions in section 344(1)(a) to (c) are met in relation to the

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company (transferee leaving group after replacing transferor as party

to loan relationship), and

(b)   

it ceases to be UK resident at the same time as it ceases to be a member

of the relevant group.

(4)   

In subsection (3) “the relevant group” has the meaning given in section 344(4).

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