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 8 — Connected parties relationships: late interest
173

376
Interpretation of section 375
(1)
For the purposes of section 375 and this section, section 414 of ICTA (meaning
of “close company” in the Tax Acts) applies with the omission of section
414(1)(a) (exclusion of non-UK resident companies).
(2)
A person who is a participator in a company which controls another company
5
is treated for the purposes of section 375 and this section as being a participator
in that other company also.
(3)
Subject to that, in section 375 and this section “participator”, in relation to a
company, means a person who is a participator in the company for the
purposes of Part 11 of ICTA because of section 417 of that Act, but not a person
10
who is a participator for those purposes just because of being a loan creditor of
the company.
(4)
Section 472 (meaning of “control”) applies for the purposes of section 375 and
this section.
(5)
In section 375—
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“CIS-based close company” means a company which would not be a close
company apart from the rights and powers of one or more partners in
a CIS limited partnership being attributed to another of the partners
under section 416(6) of ICTA because of section 417(3)(a) of that Act,
“CIS limited partnership” means a limited partnership—
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(a)
which is a collective investment scheme, or
(b)
which would be a collective investment scheme if it were not a
body corporate,
“non-qualifying territory” has the meaning given by paragraph 5E of
Schedule 28AA to ICTA,
25
“resident” has the meaning given by paragraph 5B(6) of that Schedule,
and
“small or medium-sized enterprise” has the meaning given by paragraph
5D of that Schedule.
377
Party to loan relationship having major interest in other party
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The case to which this section applies is where—
(a)
a person (“C”) standing in the position of a creditor as respects the loan
relationship is a company, and
(b)
there is a time in the actual accrual period when—
(i)
the company which has the debtor relationship (“D”) has a
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major interest in C, or
(ii)
C has a major interest in D.
378
Loans by trustees of occupational pension schemes
(1)
The case to which this section applies is where—
(a)
the loan is one made by trustees of an occupational pension scheme,
40
and
(b)
condition A, B or C is met.
(2)
Condition A is that there is a time in the actual accrual period when the
company which has the debtor relationship (“D”) is the employer of employees
to whom the scheme relates.
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Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 9 — Partnerships involving companies
174

(3)
Condition B is that there is a connection between D and such an employer for
the actual accrual period.
(4)
Condition C is that a company is such an employer and there is a time in the
actual accrual period when—
(a)
D has a major interest in that company, or
5
(b)
that company has a major interest in D.
(5)
In this section “occupational pension scheme” has the meaning given in section
150(5) of FA 2004.
(6)
Section 466 (companies connected for an accounting period) applies for the
purposes of this section.
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379
Persons indirectly standing in the position of creditor
(1)
For the purposes of this Chapter a person is treated as standing in the position
of a creditor as respects a loan relationship if the person indirectly stands in
that position by reference to a series of loan relationships or relevant money
debts.
15
(2)
If—
(a)
a person (“C”) indirectly stands in the position of creditor as respects a
loan relationship by reference to such a series of relationships or debts,
and
(b)
section 373 (late interest treated as not accruing until paid in some
20
cases) applies in relation to the debtor relationship because of
subsection (1),

the reference in section 373(3) to the corresponding creditor relationship is a
reference to C’s creditor relationship.
(3)
In subsection (1) “relevant money debt” means a money debt which would be
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a loan relationship if a company directly stood in the position of creditor or
debtor.
Chapter 9
Partnerships involving companies
380
Partnerships involving companies
30
(1)
This section applies if—
(a)
a trade or business is carried on by a firm,
(b)
any of the partners in the firm is a company (a “company partner”), and
(c)
a money debt is owed by or to the firm.
(2)
In calculating the profits and losses of the trade or business for corporation tax
35
purposes under section 1259 (calculation of firm’s profits or losses), no credits
or debits may be brought into account under this Part—
(a)
in relation to the money debt, or
(b)
in relation to any loan relationship that would fall to be treated for the
purposes of the calculation as arising from the money debt.
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Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 9 — Partnerships involving companies
175

(3)
Instead, each company partner must bring credits and debits into account
under this Part in relation to the debt or relationship for each of its accounting
periods in which the conditions in subsection (1) are met.
(4)
The following provisions of this Chapter contain special rules about the credits
and debits to be brought into account under subsection (3)—
5
(a)
section 381 (determinations of credits and debits by company partners:
general),
(b)
section 382 (company partners using fair value accounting),
(c)
section 383 (lending between partners and the partnership),
(d)
section 384 (treatment of exchange gains and losses), and
10
(e)
section 385 (company partners’ shares where firm owns deeply
discounted securities).
(5)
In those provisions “company partner” has the same meaning as in this section.
381
Determinations of credits and debits by company partners: general
(1)
The credits and debits to be brought into account under section 380(3) are to be
15
determined separately for each company partner as follows.
(2)
The money debt owed by or to the firm is treated as if—
(a)
it were owed by or, as the case may be, to the company partner, and
(b)
it were so owed for the purposes of the trade or business which the
company partner carries on.
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(3)
If the money debt arises from a transaction for the lending of money—
(a)
it continues to be treated as so arising, and
(b)
accordingly the company partner is treated as having a loan
relationship.
(4)
Anything done by or in relation to the firm in connection with the money debt
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is treated as done by or in relation to the company partner.
(5)
The credits and debits in the case of each company partner are the partner’s
appropriate share of the total credits and debits determined in accordance with
subsections (2) to (4) (without any reduction for the fact that the debt is treated
as owed by or to each company partner).
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(6)
A company partner’s “appropriate share” is the share that would be
apportioned to it on the assumption in subsection (7).
(7)
The assumption is that the total credits and debits determined in accordance
with subsections (2) to (4) are apportioned between the partners in the shares
in which any profit or loss would be apportioned between them in accordance
35
with the firm’s profit-sharing arrangements.
382
Company partners using fair value accounting
(1)
This section applies if a company partner uses fair value accounting in relation
to its interest in the firm.
(2)
The credits and debits to be brought into account by the company partner
40
under section 380(3) are to be determined on the basis of fair value accounting.

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 9 — Partnerships involving companies
176

383
Lending between partners and the partnership
(1)
This section applies if—
(a)
the money debt owed by or to the firm arises from a transaction for the
lending of money, and
(b)
there is a time in an accounting period of a company partner (“the
5
relevant accounting period”) when conditions A, B and C are met.
(2)
Condition A is that—
(a)
if the debt is owed by the firm, the company partner stands in the
position of a creditor and accordingly has a creditor relationship, and
(b)
if the debt is owed to the firm, the company partner stands in the
10
position of a debtor and accordingly has a debtor relationship.
(3)
Condition B is that the company partner controls the firm either alone or taken
together with one or more other company partners connected with the
company partner (see subsection (7)).
(4)
Condition C is that the company partner or any other company partner is
15
treated under section 381(3) as if—
(a)
it had the debtor relationship which corresponds to the creditor
relationship mentioned in subsection (2)(a), or
(b)
it had the creditor relationship which corresponds to the debtor
relationship mentioned in subsection (2)(b).
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(5)
If this section applies, for the purposes of this Part for the relevant accounting
period there is taken to be a connection between—
(a)
the company partner, and
(b)
each company partner that is within subsection (4) (including the
company partner itself if it is within that subsection),
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as a result of one of them having control of the other at a time in the period for
the purposes of section 466(2).
(6)
The provisions of this Part about connected companies relationships apply
accordingly.
(7)
For the purposes of subsection (3), one company partner is connected with
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another at any time in an accounting period if at that or any other time in the
accounting period—
(a)
one controls the other, or
(b)
both are under the control of the same person.
(8)
Section 472 (meaning of “control”) applies for the purposes of this section.
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384
Treatment of exchange gains and losses
(1)
Whether credits and debits in respect of exchange gains and losses are to be
brought into account by a company partner under this Chapter as a result of
section 328(1), or that section is disapplied by section 328(3), depends on the
firm’s accounts.
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(2)
Section 328(3) applies only so far as exchange gains and losses are recognised
in the firm’s statement of total recognised gains and losses, statement of
recognised income and expense, statement of changes in equity or statement of
income and retained earnings.

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 10 — Insurance companies
177

(3)
Accordingly, a company partner must bring credits and debits into account
under this Chapter in respect of exchange gains and losses which are not so
recognised.
(4)
For the meaning of references in this section to exchange gains and losses, see
section 475.
5
385
Company partners’ shares where firm owns deeply discounted securities
(1)
This section applies if the firm holds a deeply discounted security.
(2)
Each partner is treated for the purposes of this Chapter as beneficially entitled
to the share of the security specified in subsection (3).
(3)
That share is the share to which the partner would be entitled if—
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(a)
all the partners were companies, and
(b)
the security were apportioned in the shares in which any profit or loss
would be apportioned between them in accordance with the firm’s
profit-sharing arrangements.
(4)
In this section “deeply discounted security” has the same meaning as in
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Chapter 8 of Part 4 of ITTOIA 2005 (profits from deeply discounted securities)
(see section 430 of that Act).
Chapter 10
Insurance companies
Introduction
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386
Overview of Chapter
(1)
This Chapter contains special rules about the treatment of the loan
relationships of insurance companies.
(2)
In particular, it—
(a)
provides for special rules to apply in relation to an insurance
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company’s non-trading deficits referable to BLAGAB instead of those
in Chapter 16 (see sections 387 to 391),
(b)
excludes some loan relationships of corporate members of Lloyd’s
from this Part (see section 392), and
(c)
provides for the determination of questions concerning how far certain
30
matters are referable to any particular category of a company’s long-
term business (see sections 393 and 394).
(3)
For further special rules affecting insurance companies, see—
(a)
section 298(3) (under which activities carried on by a company in the
course of mutual insurance business which is not life assurance
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business or of BLAGAB are treated as not constituting a trade or part of
a trade),
(b)
Chapter 4 (continuity of treatment on transfers within groups or on
reorganisations), and, in particular, sections 335(1) and (2), 336(4) and
337,
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Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 10 — Insurance companies
178

(c)
section 405 (certain non-UK residents with interest on 3½% War Loan
1952 Or After),
(d)
sections 468 and 471 (connection between creditor and debtor
companies to be ignored in some cases where creditor is insurance
company carrying on BLAGAB),
5
(e)
section 483(6) (treatment of deferred acquisition costs and provision for
unearned premiums or for unexpired risks as a money debt for the
purposes of Chapter 2 of Part 6 in the case of companies carrying on
insurance business), and
(f)
section 486(4) (no exchange gains or losses to arise for the purposes of
10
that Chapter where relevant debts prevented from being deductible as
expenses of insurance companies at Step 1 of section 76(7) of ICTA).
(4)
In this Chapter “BLAGAB” means basic life assurance and general annuity
business.
Treatment of deficit on basic life assurance and general annuity business
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387
Treatment of deficit on basic life assurance and general annuity business:
introduction
(1)
Sections 388 to 391 apply instead of Chapter 16 (non-trading deficits) if a
company has a non-trading deficit from its loan relationships for BLAGAB for
any accounting period.
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(2)
In those sections “the deficit” and “the deficit period” mean that deficit and that
period respectively.
388
Basic rule: deficit set off against income and gains of deficit period
(1)
The basic rule is that the deficit must be set off against any income and gains of
the deficit period which are referable to BLAGAB.
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(2)
The income and gains are reduced accordingly.
(3)
Any such reduction is made before any expenses deduction under section 76
of ICTA (expenses of insurance companies).
389
Claim to carry back deficit
(1)
If the deficit exceeds the income and gains for the deficit period referred to in
30
section 388(1), the company may make a claim for the whole or part of the
excess (“the claim amount”)—
(a)
to be carried back for up to 3 accounting periods ending within the
permitted period, and
(b)
to be set off against the available profits of the company in those
35
periods in accordance with subsection (2).
(2)
The claim amount reduces the company’s available profits in the most recent
accounting period of the company, before any remainder reduces those in the
next most recent accounting period and then those in the next most recent
accounting period.
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(3)
For the meaning of “available profits”, see section 390.

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 10 — Insurance companies
179

(4)
In this section and that section “permitted period” means the period of 12
months immediately before the deficit period.
(5)
A claim under this section must be made—
(a)
within the period of 2 years after the end of the deficit period, or
(b)
within such further period as an officer of Revenue and Customs
5
allows.
390
Meaning of “available profits”
(1)
For the purposes of section 389 the available profits of the company for an
accounting period are its BLAGAB non-trading loan relationships profits for
the period (see subsection (4)), less the unused part of the relevant deductions
10
for the period (see subsection (5)).
(2)
If an accounting period ending within the permitted period begins before it,
only a part of the amount which would otherwise be the available profit for
that accounting period is available profit.
(3)
That part is so much as is proportionate to the part of the accounting period in
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the permitted period.
(4)
References in this section to a company’s BLAGAB non-trading loan
relationships profits for an accounting period are references to the amount (if
any) which is chargeable to tax for that period under section 299 (charge to tax
on non-trading profits) for the company’s BLAGAB.
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(5)
The unused part of the relevant deductions for an accounting period is found
as follows.
Step 1

Add together—
(a)
so much of the expenses deduction for the period given by Step 8 in
25
section 76(7) of ICTA (expenses of insurance companies) as is referable
to BLAGAB, and
(b)
so much of the sum of the deductions made in the case of the company
in respect of charges on income for that period as is so referable.
Step 2
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Add together—
(a)
the total amounts so referable which could be applied for the period in
making deductions as a result of section 76 of ICTA if the company’s
BLAGAB non-trading loan relationships profits for the period were
disregarded, and
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(b)
the total amounts so referable which could be applied for the period in
making deductions in respect of charges on income if those profits were
disregarded.
Step 3

Subtract the amount found at Step 2 from the amount found at Step 1.
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The result is the unused part of the relevant deductions for the accounting
period.
(6)
In the case of any claim under section 389, the reference in Step 1(a) in
subsection (5) to the expenses deduction for an accounting period given by