Corporation Tax Bill

House of Commons

Session 2008 - 09
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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
5
(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
20
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
40
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)
5
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
10
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
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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
25
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—
35
(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
40
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—
40
(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)),
30
“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,
35
“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
171

“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
30
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—
35
(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.