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Corporation Tax Bill


Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 7 — Group relief claims involving impaired or released consortium debts

166

 

363     

Companies connected for sections 361 and 362

(1)   

For the purposes of sections 361 and 362 there is a connection between two

companies at any time if condition A or B is met at that time.

(2)   

Condition A is that one company has control of the other.

(3)   

Condition B is that both companies are under the control of the same person

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(but see subsection (6)).

(4)   

For the purposes of sections 361 and 362 there is a connection between two

companies in a period of account if there is a connection between them (within

subsection (1)) at any time in the period.

(5)   

Section 472 (meaning of “control”) applies for the purposes of this section.

10

(6)   

Condition B is not taken to be met just because two companies have been under

the control of—

(a)   

the Crown,

(b)   

a Minister of the Crown,

(c)   

a government department,

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(d)   

a Northern Ireland department,

(e)   

a foreign sovereign power, or

(f)   

an international organisation.

(7)   

Section 468 (connection between companies to be ignored in some

circumstances) applies for the purposes of this section as it applies for the

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purposes of the provisions which apply section 466, taking references in

sections 468 and 469 to the accounting period as references to the period of

account.

(8)   

For the meaning of “international organisation”, see section 476(2) and (3).

Chapter 7

25

Group relief claims involving impaired or released consortium debts

364     

Introduction to Chapter

(1)   

This Chapter applies if—

(a)   

there is (or was) a relevant consortium creditor relationship (see

subsection (2)), and

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(b)   

either—

(i)   

an impairment loss is or has been brought into account for the

purposes of this Part for any group accounting period by the

creditor, or

(ii)   

a debit in respect of a release of liability under the relationship

35

is or has been so brought into account.

(2)   

For the purposes of this Chapter a relationship is a relevant consortium

creditor relationship if—

(a)   

it is a creditor relationship of—

(i)   

a company (the “member company”), which is a member of a

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consortium by which a consortium company is owned, or

 
 

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 7 — Group relief claims involving impaired or released consortium debts

167

 

(ii)   

a company (a “group member”) which is a member of the same

group of companies as the member company but is not itself a

member of the consortium, and

(b)   

the consortium company or, if that company is a holding company, a

consortium company which is a subsidiary of that company is (or was)

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the debtor (the “debtor consortium company”).

(3)   

The provisions of this Chapter—

(a)   

reduce debits for impairment losses and release debits under relevant

consortium creditor relationships where an amount surrendered as

group relief by the consortium company is claimed by a member

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company or group member (see section 365),

(b)   

provide for a corresponding reduction in credits in respect of such

relationships where a reduction within paragraph (a) has occurred (see

section 367),

(c)   

reduce claims for group relief where debits within paragraph (a) for

15

earlier group accounting periods exceed reductions within paragraph

(b) (see section 368), and

(d)   

provide for such claims to be carried forward where they exceed such

debits (see section 369).

(4)   

In this Chapter “release debit” means a debit in respect of a release of liability

20

under a relevant consortium creditor relationship.

(5)   

If section 403C of ICTA (amount of relief in consortium cases) applies, effect

must be given to that section before effect is given to this Chapter.

(6)   

Expressions defined in this section have the same meaning in the other

provisions of this Chapter, and sections 370 and 371 also apply for the

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interpretation of this Chapter.

(7)   

For the meaning of “impairment loss” see section 476(1).

365     

Reduction of impairment loss debits where group relief claimed

(1)   

This section applies for any group accounting period for which there is a net

consortium debit.

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(2)   

For the purposes of this Chapter there is a net consortium debit for a group

accounting period if—

(a)   

the total of the impairment losses and release debits brought into

account for that period in respect of relevant consortium creditor

relationships by—

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(i)   

the member company, and

(ii)   

every group member,

   

exceeds

(b)   

the total credits so brought into account by them in connection with

debts owed by the companies which are the debtor consortium

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companies in respect of those relationships.

(3)   

The net consortium debit is equal to that excess.

(4)   

If there is a claim for that group accounting period by the member company or

a group member for group relief in respect of an amount which may be

surrendered as group relief by the debtor consortium companies, the debits

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Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 7 — Group relief claims involving impaired or released consortium debts

168

 

brought into account in respect of the impairment losses and the release debits

mentioned in subsection (2)(a) are reduced.

(5)   

The amount of reduction in the case of each of the debits referred to in

subsection (4) (“the relevant debits”) is calculated as follows.

Step 1

5

   

Find the total amount which—

(a)   

may be surrendered as group relief by the debtor consortium

companies, and

(b)   

is claimed as group relief for the group accounting period by the

member company or any group member.

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Step 2

   

If the amount found at Step 1 does not exceed the net consortium debit,

apportion the amount found at Step 1 between the relevant debits in

proportion to their respective amounts.

   

If the amount found at Step 1 exceeds the net consortium debit, apportion so

15

much of the amount found at Step 1 as does not exceed it between the relevant

debits in proportion to their respective amounts.

(6)   

This section is subject to section 366.

366     

Effect where credit for release brought into account on amortised cost basis

(1)   

This section applies if—

20

(a)   

a company releases liability under a relevant consortium creditor

relationship of the company (“the release amount”), and

(b)   

the debtor consortium company brings into account an amount in

respect of the release for any accounting period in accordance with an

amortised cost basis of accounting.

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(2)   

An amount equal to the release amount is treated for the purposes of this

Chapter as not being a debit brought into account for that period in relation to

the relevant consortium creditor relationship.

367     

Reduction of credits exceeding impairment losses

(1)   

This section applies if, apart from this section, for any group accounting

30

period—

(a)   

the total of the impairment losses and release debits brought into

account for that period in respect of relevant consortium creditor

relationships by—

(i)   

the member company, and

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(ii)   

every group member,

   

is less than

(b)   

the total credits so brought into account by them in connection with

debts owed by the companies which are the debtor consortium

companies in respect of those relationships.

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(2)   

Those credits are reduced (but not below nil) in accordance with subsection (3).

(3)   

The amount of reduction in the case of each credit is calculated as follows.

 
 

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 7 — Group relief claims involving impaired or released consortium debts

169

 

Step 1

   

Find the total amount by which the debits in respect of the relationships for

previous group accounting periods have been reduced under section 365(4).

Step 2

   

Deduct the total amount by which credits have previously been reduced under

5

this section from the amount found at Step 1.

Step 3

   

Apportion the amount found at Step 2 between the credits in proportion to

their respective amounts.

368     

Reduction of claims where there are earlier net consortium debits

10

(1)   

This section applies if—

(a)   

for any group accounting period there is a claim by the member

company or a group member for group relief in respect of an amount

which may be surrendered as group relief by debtor consortium

companies, and

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(b)   

the total amount of the net consortium debits for earlier group

accounting periods in respect of the relevant consortium creditor

relationships exceeds any reductions in respect of those debits falling to

be made under section 365(4).

(2)   

In this section that excess is referred to as “the unreduced debits amount”.

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(3)   

If—

(a)   

the claim is the only claim for that period, and

(b)   

it exceeds the unreduced debits amount,

   

the claim is reduced by the unreduced debits amount.

(4)   

If—

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(a)   

the claim is not the only claim for that period, and

(b)   

the total of the claims exceeds the unreduced debits amount,

   

the claim is reduced by the same proportion of the unreduced debits amount

as the claim bears to that total.

(5)   

In any other case, the claim is reduced to nil.

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369     

Carry forward of claims where there are no net consortium debits

(1)   

This section applies if for any group accounting period there is—

(a)   

a claim by the member company or a group member for group relief in

respect of an amount which may be surrendered as group relief by

debtor consortium companies (as reduced under section 368, if it

35

applies), and

(b)   

no net consortium debit in respect of the relevant consortium creditor

relationships.

(2)   

The claim (as so reduced) is carried forward and treated for the purposes of

section 365

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(a)   

as increasing any such claim for group relief made by the claimant

company for its next accounting period, or

 
 

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 7 — Group relief claims involving impaired or released consortium debts

170

 

(b)   

if apart from this subsection there would be no such claim, as being

such a claim.

370     

Group accounting periods

(1)   

In this Chapter “group accounting period” means—

(a)   

any accounting period of the member company beginning on or after 1

5

October 2002, or

(b)   

any accounting period of a group member which—

(i)   

begins on or after that date, and

(ii)   

corresponds to such an accounting period of the member

company.

10

(2)   

Any such accounting period of the member company and any such

corresponding accounting periods of group members are treated for the

purposes of this Chapter as being the same accounting period.

(3)   

For the purposes of this Chapter an accounting period of a group member

corresponds to an accounting period of the member company if condition A, B

15

or C is met.

(4)   

Condition A is that the periods coincide.

(5)   

Condition B is that the accounting period of the member company includes

more than half of the accounting period of the group member.

(6)   

Condition C is that—

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(a)   

the accounting period of the member company includes part of the

accounting period of the group member, and

(b)   

the remainder of that period is not within any accounting period of the

member company.

371     

Interpretation

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(1)   

In this Chapter—

“consortium company” means a company within section 402(3)(a), (b) or

(c) of ICTA (surrender of relief between members of consortia),

“debtor consortium company” has the same meaning as in section 364 (see

section 364(2)),

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“group accounting period” is to be read in accordance with section 370,

“group member” has the same meaning as in section 364 (see section

364(2)),

“group relief” has the meaning given by section 402(1) of ICTA,

“holding company” means a company within section 402(3)(c) of ICTA,

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“member”, in relation to a consortium, has the same meaning as in

Chapter 4 of Part 10 of ICTA (group relief),

“member company” has the same meaning as in section 364 (see section

364(2)),

“net consortium debit” is to be read in accordance with section 365(2) and

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(3),

“relevant consortium creditor relationship” is to be read in accordance

with section 364(2), and

 
 

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 8 — Connected parties relationships: late interest

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“subsidiary”, in relation to a company which is a holding company,

means a company which is within section 402(3)(b) of ICTA by

reference to that holding company.

(2)   

Any reference in this Chapter to a company being owned by a consortium is to

be read in accordance with section 413(6) of ICTA.

5

(3)   

Any reference in this Chapter to two companies being members of the same

group of companies is a reference to those companies being members of the

same group of companies for the purposes of Chapter 4 of Part 10 of ICTA

(group relief) (see section 413(3)(a) of that Act).

Chapter 8

10

Connected parties relationships: late interest

372     

Introduction to Chapter

(1)   

This Chapter makes provision about the debits to be brought into account for

the purposes of this Part in cases where certain conditions relating to interest

that is not paid or is paid late are met and there is a connection between the

15

parties to the loan relationship.

(2)   

For those conditions and the rule that applies in those cases, see section 373

(late interest treated as not accruing until paid in some cases).

(3)   

For the kinds of connections where the rule applies, see—

(a)   

section 374 (connection between debtor and person standing in

20

position of creditor),

(b)   

section 375 (loans to close companies by participators etc),

(c)   

section 377 (party to loan relationship having major interest in other

party), and

(d)   

section 378 (loans by trustees of occupational pension schemes).

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(4)   

For the meaning of “standing in the position of a creditor” in this Chapter, see

section 379(1) (persons indirectly standing in the position of creditor).

373     

Late interest treated as not accruing until paid in some cases

(1)   

Debits relating to interest payable under a company’s debtor relationship are

to be brought into account for the purposes of this Part on the assumption that

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the interest does not accrue until it is paid if—

(a)   

conditions A and B are met, and

(b)   

the case is within section 374, 375, 377 or 378.

(2)   

Condition A is that the interest is not paid within the period of 12 months

following the end of the accounting period in which it would be treated as

35

accruing apart from subsection (1).

(3)   

Condition B is that credits representing the full amount of the interest are not

brought into account for the purposes of this Part in respect of the

corresponding creditor relationship for any accounting period.

(4)   

For the meaning of “corresponding creditor relationship” in cases where

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persons indirectly stand in the position of creditor, see section 379(2).

 
 

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 8 — Connected parties relationships: late interest

172

 

(5)   

References in this Chapter to “the actual accrual period” are references to the

accounting period in which the interest would be treated as accruing apart

from subsection (1).

374     

Connection between debtor and person standing in position of creditor

(1)   

The case to which this section applies is where there is for the actual accrual

5

period a connection between—

(a)   

the company which has the debtor relationship, and

(b)   

a company standing in the position of creditor as respects the loan

relationship.

(2)   

Section 466 (companies connected for an accounting period) applies for the

10

purposes of this section.

375     

Loans to close companies by participators etc

(1)   

The case to which this section applies is where—

(a)   

there is a time in the actual accrual period when the close company

conditions are met, and

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(b)   

neither the CIS-based close company conditions nor the CIS limited

partnership conditions are met.

(2)   

The close company conditions are that—

(a)   

the company which has the debtor relationship (“D”) is a close

company, and

20

(b)   

a person (“C”) standing in the position of creditor as respects the loan

relationship is—

(i)   

a participator in D,

(ii)   

the associate of a person who is participator in D,

(iii)   

a company of which a participator in D has control,

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(iv)   

a company in which a participator in D has a major interest,

(v)   

a person who controls a company which is a participator in D,

(vi)   

the associate of a person within sub-paragraph (v), or

(vii)   

a company controlled by a person within sub-paragraph (v).

(3)   

The CIS-based close company conditions are that—

30

(a)   

D is a CIS-based close company at all times when the close company

conditions are met,

(b)   

C is not resident in a non-qualifying territory at any such time, and

(c)   

D is a small or medium-sized enterprise for the actual accrual period.

(4)   

The CIS limited partnership conditions are that—

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(a)   

the debt is one which is owed to, or to persons acting for, a CIS limited

partnership,

(b)   

no member of that partnership is resident in a non-qualifying territory

at any time in the actual accrual period,

(c)   

D has received written notice from the partnership containing

40

information from which it appears that the condition in paragraph (b)

is met, and

(d)   

D is a small or medium-sized enterprise for the actual accrual period.

(5)   

Section 376 applies for the interpretation of this section.

 
 

 
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