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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

20

(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.

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(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

25

(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).

40

 
 

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.

35

(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).

 
 

 
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