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
154

Continuity of treatment: transfer of loan at notional carrying value
340
Group transfers and transfers of insurance business: transfer at notional
carrying value
(1)
This section applies in the cases mentioned in—
(a)
section 336 (transfers of loans on group transactions), and
5
(b)
section 337 (transfers of loans on insurance business transfers).
(2)
The credits and debits to be brought into account for the purposes of this Part
in respect of the loan relationship referred to in section 336(1)(b) or section
337(1)(b) are determined in accordance with subsections (3) to (5).
(3)
For the accounting period in which the transaction or, as the case may be, the
10
first of the series of transactions takes place, the transferor is treated as having
entered into that transaction for consideration of an amount equal to the
notional carrying value of the asset or liability representing the relationship
(see subsection (6)).
(4)
For any accounting period in which the transferee is a party to the relationship,
15
it is treated as if it had acquired the asset or liability representing the
relationship for consideration of an amount equal to its notional carrying
value.
(5)
If a discount arises in respect of the transaction or series of transactions, the
consideration is increased for the purposes of subsection (3) (but not subsection
20
(4)) by the amount of the discount.
(6)
For the purposes of this section—
(a)
“carrying value” has the same meaning as it has for the purposes of
section 316 (see section 317),
(b)
section 480(5) (when discount arises) applies as it applies for the
25
purposes of section 480, and
(c)
“notional carrying value”, in relation to an asset or liability, means the
amount which would have been its carrying value in the accounts of the
transferor if a period of account had ended immediately before the date
when the transferor ceased to be a party to the loan relationship.
30
(7)
Schedule 28AA to ICTA (provision not at arm’s length) does not apply in
relation to the amounts in respect of which credits or debits are to be brought
into account under this section.
(8)
This section is subject to sections 332 and 341.
341
Transferor using fair value accounting
35
(1)
This section applies instead of section 340 if, in a case where that section would
otherwise apply, the transferor is regarded for the purposes of this section as
using fair value accounting in respect of the loan relationship (see subsection
(5)).
(2)
The amount which is to be brought into account by the transferor in respect of
40
the transaction or the series of transactions referred to in section 340(3) (“the
transferor’s amount”) is—

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 4 — Continuity of treatment on transfers within groups or on reorganisations
155

(a)
if an asset is to be brought into account, its fair value as at the date when
the transferee becomes party to the loan relationship, or the fair value
of the rights under or interest in it as at that date, and
(b)
if a liability is to be brought into account, its fair value as at that date.
(3)
For any accounting period in which the transferee is a party to the loan
5
relationship, for the purpose of determining the credits and debits to be
brought into account in respect of the relationship for the purposes of this Part,
the transferee is treated as if it had acquired the asset or liability representing
the relationship for consideration of an amount equal to the transferor’s
amount.
10
(4)
If a discount arises in respect of the transaction or series of transactions, the
transferor’s amount is increased for the purposes of subsection (2) (but not
subsection (3)) by the amount of the discount.
(5)
The transferor is regarded for the purposes of this section as using fair value
accounting in respect of the loan relationship only if the credits and debits to
15
be brought into account for the purposes of this Part as respects the
relationship are determined on that basis.
(6)
It does not matter for the purposes of subsection (5) if the transferor does not
otherwise use fair value accounting in respect of the loan relationship.
(7)
For the purposes of this section, section 480(5) (when discount arises) applies
20
as it applies for the purposes of section 480.
(8)
This section is subject to section 332.
342
Issues of new securities on reorganisations: disposal at notional carrying
value
(1)
This section applies in the case mentioned in section 339.
25
(2)
For the purposes of this Part such debits and credits are to be brought into
account as would be brought into account if the exchange were a disposal of
the asset representing the loan relationship referred to in section 339(3) for
consideration of an amount equal to its notional carrying value.
(3)
For the purposes of this section, the notional carrying value of that asset is the
30
amount that would have been its carrying value in the accounts of the receiving
company if a period of account had ended immediately before the date when
the exchange occurred.
(4)
In this section—
“carrying value” has the same meaning as it has for the purposes of
35
section 316 (see section 317), and
“receiving company” has the meaning given in section 339(7).
(5)
This section is subject to section 343.
343
Receiving company using fair value accounting
(1)
This section applies instead of section 342 if, in a case where that section would
40
otherwise apply, the receiving company is regarded for the purposes of this
section as using fair value accounting in respect of the loan relationship
constituting or included in the original shares.

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 4 — Continuity of treatment on transfers within groups or on reorganisations
156

(2)
The amount which is to be brought into account by the receiving company in
respect of the exchange (“the disposal amount”) is the fair value of the asset
representing the loan relationship as at the date when the exchange occurred,
or of the rights under or interest in that relationship as at that date.
(3)
For any accounting period in which company B is a party to the loan
5
relationship, for the purpose of determining the credits and debits to be
brought into account in respect of the relationship for the purposes of this Part,
company B is treated as if it had acquired the asset representing the
relationship for consideration of an amount equal to the disposal amount.
(4)
Subsections (5) and (6) of section 341 apply for the purposes of this section as
10
they apply for the purpose of that section, taking references in that section to
the transferor as references to the receiving company.
(5)
In this section “company B”, “original shares” and “receiving company” have
the meaning given in section 339(7).
Transferee leaving group after replacing transferor as party to loan relationship
15
344
Introduction
(1)
Sections 345 and 346 apply if—
(a)
this Chapter applies in the case mentioned in section 336 (transfers of
loans on group transactions),
(b)
section 341 (transferor using fair value accounting) does not apply, and
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(c)
before the end of the relevant 6 year period and while still a party to the
relevant loan relationship, the transferee ceases to be a member of the
relevant group.
(2)
But the transferee is not treated for the purposes of this section and sections 345
and 346 as having left the relevant group if—
25
(a)
an asset or liability which represents a loan relationship is transferred
in the course of a transfer or merger in relation to which Chapter 13
(European cross-border transfers of business) or Chapter 14 (European
cross-border mergers) applies, and
(b)
the transferee ceases to be a member of the relevant group in
30
consequence of the transfer or merger.
(3)
In a case where subsection (2) applies, if the transferee becomes a member of
another group in consequence of the transfer or merger, it is treated for the
purposes of this section and sections 345 and 346 as if the relevant group and
the other group were the same.
35
(4)
In this section and sections 345 and 346—
“the relevant 6 year period” means the period of 6 years following—
(a)
in a case where section 340 applies because of a transaction
within section 336(2) (“case A”), that transaction, or
(b)
in a case where section 340 applies because of a series of
40
transactions within section 336(3) (“case B”), the last transaction
of that series,
“the relevant group” means—
(a)
in case A, the group mentioned in section 336(2), and
(b)
in case B, the group mentioned in section 336(3), and
45

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 4 — Continuity of treatment on transfers within groups or on reorganisations
157

“the relevant loan relationship” means the loan relationship mentioned in
section 336(1)(b).
345
Transferee leaving group otherwise than because of exempt distribution
(1)
This section applies if—
(a)
the transferee ceases to be a member of the relevant group, and
5
(b)
it does not so cease just because of a distribution which is exempt as a
result of—
(i)
section 213(2) of ICTA (exempt distributions), or
(ii)
section 213A of ICTA (exempt distributions: division of
business).
10
(2)
If condition A or B is met, this Part applies as if—
(a)
the transferee had assigned the asset or liability representing the
relevant loan relationship immediately before ceasing to be a member
of the relevant group,
(b)
the assignment had been for consideration of an amount equal to the
15
fair value of the asset or liability at that time, and
(c)
the transferee had immediately reacquired the asset or liability for
consideration of the same amount.
(3)
Condition A is that if this Part applied as mentioned in subsection (2) because
of that subsection applying, a credit would be brought into account for the
20
purposes of this Part by the transferee because of subsection (2)(a) and (b).
(4)
Condition B is that—
(a)
the relevant loan relationship is a creditor relationship,
(b)
the transferee has a hedging relationship between a derivative contract
and the creditor relationship, and
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(c)
because of section 631(2)(a) and (b) (transferee leaving group otherwise
than because of exempt distribution) a credit is to be brought into
account by the transferee for the purposes of Part 7 (derivative
contracts) in respect of the derivative contract.
(5)
Section 707 (meaning of “hedging relationship”) applies for the purposes of
30
this section.
346
Transferee leaving group because of exempt distribution
(1)
This section applies if—
(a)
the transferee ceases to be a member of the relevant group just because
of a distribution which is exempt as a result of—
35
(i)
section 213(2) of ICTA (exempt distributions), or
(ii)
section 213A of that Act (exempt distributions: division of
business), and
(b)
there is a chargeable payment within the meaning of section 214(2) of
that Act (chargeable payments connected with exempt distributions)
40
within 5 years after the making of that distribution.
(2)
If condition A or B is met, this Part applies as if—
(a)
the transferee had assigned the asset or liability representing the
relevant loan relationship immediately before the chargeable payment
was made,
45

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 4 — Continuity of treatment on transfers within groups or on reorganisations
158

(b)
the assignment had been for consideration of an amount equal to the
fair value of the asset or liability immediately before the transferee
ceased to be a member of the relevant group, and
(c)
the transferee had immediately reacquired the asset or liability for
consideration of the same amount.
5
(3)
Condition A is that if subsection (2) applied a credit would be brought into
account for the purposes of this Part by the transferee because of subsection
(2)(a) and (b).
(4)
Condition B is that—
(a)
the relevant loan relationship is a creditor relationship,
10
(b)
the transferee has a hedging relationship between a derivative contract
and the creditor relationship, and
(c)
because of section 632(2)(a) and (b) (transferee leaving group because
of exempt distribution) a credit is to be brought into account by the
transferee for the purposes of Part 7 (derivative contracts) in respect of
15
the derivative contract.
(5)
Section 707 (meaning of “hedging relationship”) applies for the purposes of
this section.
Disapplication of Chapter where transferor party to avoidance
347
Disapplication of Chapter where transferor party to avoidance
20
(1)
This Chapter does not apply in the cases mentioned in—
(a)
section 336 (transfers of loans on group transactions), and
(b)
section 337 (transfers of loans on insurance business transfers),

if conditions A and B are met.
(2)
Condition A is that the transferor is a party to arrangements in accordance with
25
which there is likely to be a transfer of rights or liabilities under the loan
relationship by the transferee to another person in circumstances in which
section 336 or 337 would not apply.
(3)
Condition B is that the purpose or one of the main purposes of the
arrangements is to secure a tax advantage for the transferor or a person
30
connected with it.
(4)
This Chapter does not apply in relation to a disposal in the cases mentioned in
subsection (1) if section 455 (disposals for consideration not fully recognised by
accounting practice) applies in relation to the disposal.
(5)
In this section—
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“arrangements” includes any scheme, agreement, understanding,
transaction or series of transactions, and
“transfer” includes any arrangement which equates in substance to a
transfer (including any acquisition or disposal of, or increase or
decrease in, a share of the profits or assets of a partnership).
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Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 5 — Connected companies relationships: introduction and general
159

Chapter 5
Connected companies relationships: introduction and general
348
Introduction: meaning of “connected companies relationship”
(1)
This Chapter contains some general rules relating to connected companies
relationships.
5
(2)
For the purposes of this Part a debtor relationship of a company is a connected
companies relationship if there is a connection between—
(a)
the company, and
(b)
another company standing in the position of a creditor as respects the
debt in question.
10
(3)
For the purposes of subsection (2) a company is treated as standing in the
position of a creditor if it indirectly stands in that position by reference to a
series of loan relationships or relevant money debts.
(4)
For the purposes of this Part a creditor relationship of a company is a connected
companies relationship if there is a connection between—
15
(a)
the company, and
(b)
another company standing in the position of a debtor as respects the
debt in question.
(5)
For the purposes of subsection (4) a company is treated as standing in the
position of a debtor if it indirectly stands in that position by reference to a series
20
of loan relationships or relevant money debts.
(6)
For the purposes of this Part, if a loan relationship is a connected companies
relationship at any time in an accounting period, it is treated as being such a
relationship for the period.
(7)
In this section “relevant money debt” means a money debt which would be a
25
loan relationship if a company directly stood in the position of creditor or
debtor.
(8)
Section 466 (companies connected for an accounting period) applies for the
purposes of this section.
349
Application of amortised cost basis to connected companies relationships
30
(1)
This section applies if a loan relationship is a connected companies relationship
for an accounting period.
(2)
The credits and debits which are to be brought into account for the purposes of
this Part in respect of the relationship for the period are determined on an
amortised cost basis of accounting.
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(3)
Subsection (2) does not apply if section 454(4) (which requires fair value
accounting to be applied to reset bonds etc) applies.
(4)
See also section 534(8) (which disapplies this section where the requirement to
apply fair value accounting under section 534(1) applies).