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 12 — Special rules for particular kinds of securities
194

(3)
The election has effect from the beginning of the period of account in which the
first relevant asset is acquired.
(4)
In this section “relevant assets” has the same meaning as in section 416.
418
Loan relationships treated differently by connected debtor and creditor
(1)
This section applies if—
5
(a)
two connected companies are party to a loan relationship, one (“the
debtor”) as debtor and the other (“the creditor”) as creditor, and
(b)
conditions A, B and C are met.
(2)
Condition A is that the debtor, in accordance with generally accepted
accounting practice, treats the rights and liabilities under the loan relationship
10
as divided between—
(a)
rights and liabilities under a loan relationship (“the host contract”) and,
(b)
rights and liabilities under one or more derivative financial
instruments or equity instruments.
(3)
Condition B is that the creditor, in accordance with generally accepted
15
accounting practice, does not treat its rights and liabilities under the loan
relationship as so divided.
(4)
Condition C is that—
(a)
the debits brought into account by the debtor under this Part in respect
of the host contract for any accounting period, exceed
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(b)
the credits brought into account (otherwise than as a result of this
section) by the creditor in respect of the loan relationship for the
corresponding accounting period or periods of the creditor.
(5)
The creditor is treated for the purposes of this Part as bringing into account for
the corresponding accounting period or periods additional credits in respect of
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the loan relationship of an amount equal to the excess.
(6)
But if the creditor is a party to the loan relationship as creditor during only part
of the corresponding accounting period (or any of the corresponding periods),
it is treated for the purposes of this Part as bringing into account for the period
only such part of the excess as is just and reasonable.
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(7)
Section 419 supplements this section.
419
Section 418: supplementary
(1)
References in section 418 to a company being a party to a loan relationship as
debtor or creditor include a company which indirectly stands in the position of
a debtor or creditor as respects the loan relationship by reference to a series of
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loan relationships or relevant money debts.
(2)
In subsection (1) “relevant money debt” means a money debt that would be a
loan relationship if a company directly stood in the position of debtor or
creditor.
(3)
For the purposes of section 418 an accounting period of the creditor
40
corresponds with an accounting period of the debtor if—
(a)
it coincides with it, or
(b)
it is wholly or partly within it.

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 13 — European cross-border transfers of business
195

(4)
If a corresponding accounting period of the creditor does not coincide with that
of the debtor, such apportionments as are just and reasonable are to be made
for the purposes of section 418.
(5)
Two companies are connected for the purposes of section 418 if their
accounting results are reflected in the consolidated group accounts of a group
5
of companies.
(6)
Subsection (5) does not affect the application of section 839 of ICTA (how to tell
whether persons are connected).
(7)
In this section “the debtor” and “the creditor” have the same meaning as in
section 418.
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Options etc
420
Assumptions where options etc apply
(1)
This section applies if—
(a)
the answer to any question specified in subsection (2)—
(i)
depends on the exercise of an option by a party to a loan
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relationship (“A”) or A’s associate, or
(ii)
is otherwise under the control of A or A’s associate, and
(b)
an amortised cost basis of accounting applies for an accounting period.
(2)
The questions are—
(a)
whether any amount will become due under the relationship after the
20
period ends,
(b)
how much will become due under it after the period ends, and
(c)
when after the end of the period an amount will become due under the
relationship.
(3)
In determining the credits and debits to be brought into account for the
25
accounting period in accordance with an amortised cost basis, the assumption
in subsection (4) is to be made.
(4)
The assumption is that A or A’s associate will exercise the power to determine
whether and on what date any amount will become due in the way which
appears to be the most advantageous to A.
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(5)
That way is to be determined—
(a)
as at the end of the accounting period, and
(b)
ignoring taxation.
Chapter 13
European cross-border transfers of business
35
Introduction
421
Introduction to Chapter
(1)
This Chapter applies if—
(a)
condition A or B is met, and

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 13 — European cross-border transfers of business
196

(b)
each of the companies mentioned in subsection (3)(a) or (4)(a) makes a
claim under this section,

but see section 426 (tax avoidance etc) and section 429 (disapplication of
Chapter where transparent entities involved).
(2)
Sections 424 and 425 (reorganisations involving loan relationships) also apply
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if, in addition to the conditions in section 424(1)(a) and (b), condition C is met
in relation to the transfer in the course of which the reorganisation in question
occurs.
(3)
Condition A is that—
(a)
a company resident in one member State transfers to a company
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resident in another member State the whole or part of a business carried
on in the United Kingdom,
(b)
the transfer is wholly in exchange for shares or debentures issued by
the transferee to the transferor, and
(c)
immediately after the transfer the transferee is within the charge to
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corporation tax.
(4)
Condition B is that—
(a)
a company transfers part of its business to one or more companies,
(b)
the transferor is resident in one member State,
(c)
the part of the transferor’s business which is transferred is carried on
20
by the transferor in the United Kingdom,
(d)
at least one transferee is resident in a member State other than that in
which the transferor is resident (and each transferee is resident in a
member State, but not necessarily the same one),
(e)
the transferor continues to carry on a business after the transfer,
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(f)
immediately after the transfer each transferee is within the charge to
corporation tax, and
(g)
the transfer—
(i)
is made in exchange for the issue of shares in or debentures of
each transferee to each person holding shares in or debentures
30
of the transferor, or
(ii)
is not so made only because, and only so far as, a transferee is
prevented from so issuing such shares or debentures by section
658 of the Companies Act 2006 (c. 46) (general rule against
limited company acquiring own shares) or by a corresponding
35
provision of the law of another member State preventing such
an issue.
(5)
Condition C is that—
(a)
a UK resident company transfers part of its business to one or more
companies,
40
(b)
the part of the transferor’s business which is transferred to the
transferees was carried on immediately before the transfer in a member
State other than the United Kingdom through a permanent
establishment, and
(c)
the conditions in subsection (4)(d), (e) and (g) are met.
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(6)
In this Chapter—
“the transfer of business” means the transfer of business mentioned in
subsection (3)(a), (4)(a) or (5)(a),
“transferee” has the same meaning as in subsection (3), (4) or (5), and

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 13 — European cross-border transfers of business
197

“the transferor” has the same meaning as in subsection (3), (4) or (5).
(7)
For the meaning of “company” and “resident in a member State”, see section
430.
Transfers of loan relationships at notional carrying value
422
Transfer of loan relationship at notional carrying value
5
(1)
This section applies if in the course of the transfer of business the transferor
transfers an asset or liability representing a loan relationship to a transferee.
(2)
For the purpose of determining the credits and debits to be brought into
account in respect of the loan relationship for the purposes of this Part, the
transferor and the transferee are treated as having entered into the transfer of
10
that asset or liability for consideration of an amount equal to the notional
carrying value of the asset or liability.
(3)
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), and
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(b)
“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.
(4)
This section is subject to section 423 (transferor using fair value accounting).
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423
Transferor using fair value accounting
(1)
This section applies instead of section 422 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
(4)).
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(2)
The amount which is to be brought into account by the transferor in respect of
the transfer of the asset or liability mentioned in section 422(1) (“the
transferor’s amount”) is—
(a)
if an asset is to be brought into account, its fair value as at the date when
the transferee becomes a party to the loan relationship, or the fair value
30
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
relationship, for the purpose of determining the credits and debits to be
brought into account in respect of it for the purposes of this Part, the transferee
35
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.
(4)
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
be brought into account for the purposes of this Part as respects the
40
relationship are determined on that basis.
(5)
It does not matter for the purposes of subsection (4) if the transferor does not
otherwise use fair value accounting in respect of the loan relationship.