Corporation Tax Bill

House of Commons

Session 2008 - 09
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Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 4 — Continuity of treatment on transfers within groups or on reorganisations
150

334
Non-UK resident company ceasing to hold loan relationship for UK
permanent establishment
(1)
This section applies if an asset or liability representing a loan relationship of a
company which is not UK resident ceases to be held or owed for the purposes
of a permanent establishment of the company in the United Kingdom in
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circumstances not involving a related transaction (but see subsection (3)).
(2)
This Part applies as if—
(a)
immediately before the asset or liability so ceases the company had
assigned it, so far as so ceasing, for consideration of an amount equal to
its fair value at that time, and
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(b)
the company had immediately reacquired it for consideration of the
same amount.
(3)
This section does not apply if—
(a)
the conditions in section 344(1)(a) to (c) are met in relation to the
company (transferee leaving group after replacing transferor as party
15
to loan relationship), and
(b)
the asset or liability mentioned in subsection (1) ceases to be held or
owed for the purposes of the permanent establishment at the same time
as the company 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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Chapter 4
Continuity of treatment on transfers within groups or on reorganisations
Application of this Chapter
335
Introduction to Chapter
(1)
This Chapter applies in the cases mentioned in—
25
(a)
section 336 (transfers of loans on group transactions),
(b)
section 337 (transfers of loans on insurance business transfers), and
(c)
section 339 (issues of new securities on certain cross-border
reorganisations).
(2)
The following sections make provision about how the credits and debits to be
30
brought into account under this Part in those cases are determined—
(a)
sections 340 and 341 (which apply in the cases mentioned in sections
336 and 337), and
(b)
sections 342 and 343 (which apply in the case mentioned in section 339).
(3)
Sections 344 to 346 provide for the treatment of a loan relationship in respect of
35
which section 336 has applied where the company replacing another as a party
to a loan relationship later leaves the group of companies of which they were
members.
(4)
Section 347 (disapplication of Chapter where transferor party to avoidance
involving subsequent transfer by transferee) disapplies this Chapter in some
40
circumstances in the cases mentioned in 336 and 337.

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 4 — Continuity of treatment on transfers within groups or on reorganisations
151

(5)
For the meaning of references in this Chapter to a company replacing another
as a party to a loan relationship, see section 338.
(6)
In this Chapter references to a company being a member of a group of
companies are to be read in accordance with section 170 of TCGA 1992
(interpretation of sections 171 to 181 of that Act: groups).
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336
Transfers of loans on group transactions
(1)
The case referred to in section 335(1)(a) is where—
(a)
there is a transaction within subsection (2) or a series of transactions
within subsection (3), and
(b)
as a result one of the companies involved (“the transferee”) directly or
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indirectly replaces the other (“the transferor”) as a party to a loan
relationship.
(2)
A transaction is within this subsection if it is a related transaction between two
companies which are—
(a)
members of the same group, and
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(b)
within the charge to corporation tax in respect of that transaction.
(3)
A series of transactions is within this subsection if it is a series having the same
effect as a related transaction between two companies each of which—
(a)
has been a member of the same group at any time in the course of that
series, and
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(b)
would be within the charge to corporation tax in respect of such a
related transaction.
(4)
This Chapter does not apply as a result of this section in relation to—
(a)
a transfer of an asset, or
(b)
a transfer of rights under, or an interest in, an asset,
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as a result of a transaction within subsection (2) or a series of transactions
within subsection (3) if immediately before or after the transfer the asset is
within one of the categories set out in section 440(4)(a), (d) and (e) of ICTA
(assets held for certain categories of long-term business).
(5)
In this Chapter, in relation to a case within subsection (1), “the transferee” and
30
“the transferor” have the same meaning as in that subsection.
337
Transfers of loans on insurance business transfers
(1)
The case referred to in section 335(1)(b) is where—
(a)
a transfer between two companies occurs to which this section applies,
and
35
(b)
as a result one of the companies (“the transferee”) directly or indirectly
replaces the other (“the transferor”) as a party to a loan relationship.
(2)
This section applies to the transfers specified in subsection (3), so far as they are
not excluded by subsection (4).
(3)
They are—
40
(a)
a transfer between two companies of business consisting of the
effecting or carrying out of contracts of long-term insurance which has
effect under an insurance business transfer scheme, and

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 4 — Continuity of treatment on transfers within groups or on reorganisations
152

(b)
any transfer between two companies which is a qualifying overseas
transfer.
(4)
Subsection (3) does not apply to a transfer of an asset, or of rights under or an
interest in an asset, if the asset—
(a)
was within one of the categories set out in section 440(4) of ICTA
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immediately before the transfer, and
(b)
is not within that category immediately after it.
(5)
Subsection (6) applies for the purposes of subsection (4) if one of the companies
mentioned in subsection (3) is an overseas life insurance company.
(6)
An asset is taken as being in the same category both immediately before and
10
immediately after a transfer if the asset—
(a)
was in one category immediately before the transfer, and
(b)
is within the corresponding category immediately after it.
(7)
In this Chapter, in relation to a case within subsection (1), “the transferee” and
“the transferor” have the same meaning as in that subsection.
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338
Meaning of company replacing another as party to loan relationship
(1)
References in this Chapter to one company (“A”) replacing another company
(“B”) as a party to a loan relationship include references to A becoming a party
to a loan relationship which—
(a)
confers rights within subsection (2),
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(b)
imposes obligations within subsection (2), or
(c)
both confers such rights and imposes such obligations.
(2)
Rights or obligations are within this subsection if they are equivalent to those
of B under a loan relationship to which B has previously ceased to be a party.
(3)
For the purposes of subsection (2), A’s rights under a creditor relationship are
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equivalent to rights under another creditor relationship if each set of rights
gives the holder of an asset representing the relationship in question—
(a)
the same rights against the same persons as to capital, interest and
dividends, and
(b)
the same remedies to enforce those rights.
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(4)
For the purposes of subsection (3), any difference in—
(a)
the total nominal amounts of the assets representing each relationship,
(b)
the form in which they are held, or
(c)
the way in which they can be transferred,

is ignored.
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(5)
For the purposes of subsection (2), A’s obligations under a debtor relationship
are equivalent to obligations under another debtor relationship if each set of
obligations subjects the holder of the liability representing the relationship in
question to—
(a)
the same obligations to the same persons as to capital, interest and
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dividends, and
(b)
the same remedies to enforce those obligations.
(6)
For the purposes of subsection (5), any difference in—

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 4 — Continuity of treatment on transfers within groups or on reorganisations
153

(a)
the total nominal amounts of the assets representing the creditor
relationship corresponding to each relationship,
(b)
the form in which those assets are held, or
(c)
the way in which they can be transferred,

is ignored.
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339
Issues of new securities on certain cross-border reorganisations
(1)
The case referred to in section 335(1)(c) is where each of conditions A to D is
met.
(2)
Condition A is that sections 127 to 130 of TCGA 1992 (reorganisations: equation
of original shares and new holding)—
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(a)
apply in relation to an exchange as a result of section 135(3) of that Act
(which provides for sections 127 to 130 to apply to an exchange of
securities for those in another company as if it were a reorganisation),
or
(b)
would so apply but for section 116(5) of that Act (which disapplies
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sections 127 to 130 where the original shares or the new holding consist
of or include a qualifying corporate bond).
(3)
Condition B is that the original shares consist of or include an asset
representing a loan relationship.
(4)
Condition C is that company A is resident in one member State and company
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B is resident in another member State.
(5)
For the purposes of this section a company is resident in a member State if—
(a)
it is within a charge to tax under the law of the State as being resident
for that purpose, and
(b)
it is not regarded, for the purpose of any double taxation relief
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arrangements to which the State is a party, as resident in a territory not
within a member State.
(6)
Condition D is that neither Chapter 13 (European cross-border transfers of
business) nor Chapter 14 (European cross-border mergers) applies in relation
to the exchange.
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(7)
In this section—
(a)
“company A” and “company B” have the same meaning as in section
135 of TCGA 1992,
(b)
“original shares” has the same meaning as it has for the purposes of
sections 126 to 131 of that Act, as applied by section 135 of that Act, and
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(c)
“receiving company” means the company to which the issue of shares
in or debentures of company B mentioned in section 135(1) of that Act
is made.
(8)
If company B is a company to which section 135(5) of TCGA 1992 applies
(companies with no share capital), the reference in subsection (7)(c) to the
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shares in or debentures of company B includes a reference to any interests in
the company possessed by its members.