Corporation Tax Bill

House of Commons

Session 2008 - 09
Internet Publications
Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 18 — General and supplementary provisions
223

473
Meaning of “major interest”
(1)
In this Part references to a company (“A”) having a major interest in another
company (“B”) are to be read as follows.
(2)
A has a major interest in B at any time if at that time—
(a)
A and one other person (“C”), taken together, have control of B, and
5
(b)
A and C each have interests, rights and powers representing at least
40% of the holdings, rights and powers as a result of which A and C are
taken to have control of B.
(3)
The reference in subsection (2)(b) to interests, rights and powers does not
include interests, rights or powers arising from shares held by a company if—
10
(a)
a profit on a sale of the shares would be treated as a trading receipt of a
trade carried on by the company, and
(b)
the shares are not assets of an insurance company’s long-term
insurance fund.
(4)
Section 474 makes provision about how this section operates where connected
15
companies or partnerships are involved.
(5)
For the purposes of this section and section 474, a company (“D”) is connected
with another company (“E”) if—
(a)
D controls E,
(b)
E controls D, or
20
(c)
D and E are both controlled by the same company.
(6)
Section 472 (meaning of “control”) applies for the purposes of this section and
section 474.
(7)
If two or more persons taken together have the power mentioned in section
472(2) (as read with the other provisions of section 472) as respects the affairs
25
of a company (“B”), they are taken for the purposes of subsection (2)(a) to have
control of B.
474
Treatment of connected companies and partnerships for section 473
(1)
For the purposes of section 473(2), all the interests, rights and powers of any
company connected with another company are attributed to the other
30
company before determining any question—
(a)
whether two persons taken together have control of a company at any
time, or
(b)
whether a person has at any time interests, rights and powers
representing at least 40% of the holdings, rights and powers in respect
35
of a company.
(2)
If section 1259 (calculation of firm’s profits and losses) applies, any property,
rights or powers held or exercisable for the purposes of the firm are treated for
the purposes of section 473, as respects any time in an accounting period of the
firm, on the basis of the assumptions in subsection (3).
40
(3)
The assumptions are that—
(a)
the property, rights or powers had been apportioned between, and
were held or exercisable by, the partners in the firm severally, and

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 18 — General and supplementary provisions
224

(b)
the apportionment was in the same shares as those in which the profit
or loss of the accounting period would be apportioned between the
partners under the firm’s profit-sharing arrangements.
(4)
Subsection (5) applies if—
(a)
a trade or business is carried on by a firm, and
5
(b)
the firm stands in the position of a creditor or debtor as respects a
money debt.
(5)
The questions in subsection (6) are to be determined as if each of the partners
in the firm separately, instead of the firm, stood in the position of a creditor or,
as the case may be, a debtor as respects the money debt to the extent of that
10
partner’s appropriate share (see subsection (8)).
(6)
The questions are—
(a)
whether a company has a major interest in another company for an
accounting period in the case of a loan relationship, or
(b)
how far any amount is treated under this Part in any particular way as
15
a result of a company having or, as the case may be, not having such a
major interest.
(7)
The references to partners in subsections (3) and (5) do not include a reference
to the general partner of a limited partnership which is a collective investment
scheme.
20
(8)
For the purposes of subsection (5), a partner’s “appropriate share” is the same
share as the partner’s share under the firm’s profit-sharing arrangements of
any profit or loss calculated in accordance with section 1259 for the accounting
period in question.
475
Meaning of expressions relating to exchange gains and losses
25
(1)
References in this Part to exchange gains or exchange losses, in relation to a
company, are references respectively to—
(a)
profits or gains which arise as a result of comparing at different times
the expression in one currency of the whole or some part of the
valuation put by the company in another currency on an asset or
30
liability of the company, or
(b)
losses which so arise.
(2)
If the result of such a comparison is that neither an exchange gain nor an
exchange loss arises, for the purposes of this Part an exchange gain of nil is
taken to arise in the case of that comparison.
35
(3)
The Treasury may make provision by regulations as to the way in which
exchange gains or losses are to be calculated for the purposes of this section in
a case where fair value accounting is used by the company.
(4)
The regulations may be made so as to apply to periods of account beginning
before the regulations are made, but not earlier than the beginning of the
40
calendar year in which they are made.
(5)
Any reference in this Part to an exchange gain or loss from a loan relationship
of a company is a reference to an exchange gain or loss arising to a company in
relation to an asset or liability representing a loan relationship of the company.

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 18 — General and supplementary provisions
225

Other general definitions
476
Other definitions
(1)
In this Part—
“alternative finance arrangements” has the meaning given in section
501(2),
5
“associate” has the meaning given by section 417(3) of ICTA,
“collective investment scheme” has the meaning given by section 235 of
FISMA 2000,
“debt” includes a debt the amount of which is to be ascertained by
reference to matters which vary from time to time,
10
“equity instrument” has the meaning it has for accounting purposes,
“gilt-edged securities” means any securities which—
(a)
are gilt-edged securities for the purposes of TCGA 1992 (see
Schedule 9 to that Act), or
(b)
will be such securities on the making of any order under
15
paragraph 1 of Schedule 9 to that Act the making of which is
anticipated in the prospectus under which they are issued,
“impairment” includes uncollectability,
“impairment loss” means a debit in respect of the impairment of a
financial asset,
20
“income statement” has the meaning it has for accounting purposes,
“international organisation” has the meaning given in subsection (2) (and
also see subsection (3)),
“loan” includes any advance of money and related expressions are to be
read accordingly,
25
“non-trading credit” and “non-trading debit” are to be read in accordance
with section 301 (but also see sections 330 and 482(1)),
“profit-sharing arrangements”, in relation to a firm, has the meaning
given in section 1262(4) (allocation of firm’s profits or losses between
partners),
30
“share”, in relation to a company, means any share in the company under
which an entitlement to receive distributions may arise (except as
provided in section 522(6)), but does not include a share in a building
society,
“statement of changes in equity” has the meaning it has for accounting
35
purposes,
“statement of comprehensive income” has the meaning it has for
accounting purposes,
“statement of income and retained earnings” has the meaning it has for
accounting purposes,
40
“statement of recognised income and expense” has the meaning it has for
accounting purposes,
“statement of total recognised gains and losses” has the meaning it has for
accounting purposes,
“tax advantage” has the meaning given by section 840ZA of ICTA,
45
“this Part” is to be read in accordance with section 294(2), and
“trade” and “purposes of trade” are to be read in accordance with section
298.

Corporation Tax Bill
Part 6 — Relationships treated as loan relationships etc
Chapter 2 — Relevant non-lending relationships
226

(2)
In this Part “international organisation” means an organisation of which—
(a)
two or more sovereign powers are members, or
(b)
the governments of two or more sovereign powers are members.
(3)
If, in any proceedings, any question arises whether a person is an international
organisation for the purposes of any provision of this Part, a certificate issued
5
by or under the authority of the Secretary of State stating any fact relevant to
that question is conclusive evidence of that fact.
Part 6
Relationships treated as loan relationships etc
10
Chapter 1
Introduction
477
Overview of Part
(1)
This Part deals with matters treated for some or all purposes as loan
relationships or rights, payments or profits under loan relationships.
15
(2)
See, in particular—
(a)
Chapter 2 (relevant non-lending relationships),
(b)
Chapter 3 (OEICs, unit trusts and offshore funds),
(c)
Chapter 4 (building societies),
(d)
Chapter 5 (industrial and provident societies),
20
(e)
Chapter 6 (alternative finance arrangements),
(f)
Chapter 7 (shares with guaranteed returns etc),
(g)
Chapter 8 (returns from partnerships),
(h)
Chapter 9 (manufactured interest etc),
(i)
Chapter 10 (repos), and
25
(j)
Chapter 11 (investment life insurance contracts).
(3)
For the relationship of this Part to other Parts of this Act, see—
(a)
section 294(2) (which provides for references to Part 5 to be read as
including references to this Part), and
(b)
sections 464 and 465 (relationship of Part 5 and this Part to other
30
provisions).
Chapter 2
Relevant non-lending relationships
Introduction: meaning of “relevant non-lending relationship” etc
478
Relevant non-lending relationships: introduction
35
(1)
This Chapter provides for Part 5 to apply to relevant non-lending relationships
in relation to some matters as it applies to loan relationships (see section 481).
(2)
For the meaning of “relevant non-lending relationship”, see—

Corporation Tax Bill
Part 6 — Relationships treated as loan relationships etc
Chapter 2 — Relevant non-lending relationships
227

(a)
section 479 (relevant non-lending relationships not involving
discounts), and
(b)
section 480 (relevant non-lending relationships involving discounts).
(3)
For provisions extending the meaning of “money debt” and “interest” in this
Chapter, see—
5
(a)
section 483 (exchange gains and losses: amounts treated as money
debts), and
(b)
section 484 (provision not at arm’s length: meaning of “interest” and
“money debt”).
(4)
For exclusions from this Chapter, see—
10
(a)
section 485 (exclusion of debts where profits or losses within Part 7 or
8), and
(b)
section 486 (exclusion of exchange gains and losses in respect of tax
debts etc).
479
Relevant non-lending relationships not involving discounts
15
(1)
A company has a relevant non-lending relationship if—
(a)
the company stands, or has stood, in the position of a creditor or debtor
in relation to a money debt,
(b)
the money debt did not arise from a transaction for the lending of
money (and so, because of section 302(1)(b), there is no loan
20
relationship), and
(c)
the money debt is one of the kinds mentioned in subsection (2).
(2)
The kinds of debt are—
(a)
a debt on which interest is payable to or by the company,
(b)
a debt in relation to which exchange gains or losses arise to the
25
company, and
(c)
a debt in relation to which an impairment loss (or credit in respect of
the reversal of an impairment loss) arises to the company in respect of
an unpaid (or previously unpaid) business payment.
(3)
In subsection (2) “business payment” means a payment which, if it were paid,
30
would fall to be brought into account for corporation tax purposes as a receipt
of a trade, UK property business or overseas property business carried on by
the company.
(4)
For the meaning of “money debt” and “interest” in this Chapter, see—
(a)
section 483 (exchange gains and losses: amounts treated as money
35
debts) and
(b)
section 484 (provision not at arm’s length: meaning of “interest” and
“money debt”).
(5)
For the meaning of “exchange gains or losses”, see section 475.
(6)
This section is subject to section 485 (exclusion of debts where profits or losses
40
within Part 7 or 8).
480
Relevant non-lending relationships involving discounts
(1)
A company has a relevant non-lending relationship if—

Corporation Tax Bill
Part 6 — Relationships treated as loan relationships etc
Chapter 2 — Relevant non-lending relationships
228

(a)
the company stands in the position of creditor in relation to a money
debt,
(b)
the money debt did not arise from a transaction for the lending of
money (and so, because of section 302(1)(b), there is no loan
relationship),
5
(c)
the money debt is one from which a discount arises to the company,
(d)
the discount does not fall to be brought into account under section 509
(treatment of alternative finance arrangements as loan relationships
etc) as a result of arrangements to which section 503 (purchase and
resale arrangements) applies, and
10
(e)
in a case where the money debt is some or all of the consideration
payable for a disposal of property, conditions A and B are met.
(2)
Condition A is that the property in question is not—
(a)
an asset representing a loan relationship the disposal of which is a
disposal to which subsection (3) applies, or
15
(b)
an asset representing a derivative contract the disposal of which is such
a disposal.
(3)
This subsection applies to a disposal if—
(a)
section 340 (group transfers and transfers of insurance business:
transfer at notional carrying value) applies to it or would apply apart
20
from section 341 (transferor using fair value accounting),
(b)
section 625 (group member replacing another as party to derivative
contract) applies to it or would apply apart from section 628 (transferor
using fair value accounting), or
(c)
the whole of the consideration for the disposal is brought into account
25
for the purposes of Part 5 (loan relationships) or Part 7 (derivative
contracts).
(4)
Condition B is that, assuming that the money debt will be paid in full, it does
not fall to be brought into account for corporation tax purposes as a trading
receipt of the company.
30
(5)
For the purposes of this section, a discount is, in particular, taken to arise from
a money debt if—
(a)
there is a sale of property for consideration some or all of which is
money which falls to be paid after the sale,
(b)
the amount or value of the whole consideration exceeds what the
35
purchaser would have paid for the property if payment in full had been
required at the time of the sale, and
(c)
some or all of the excess can reasonably be regarded as representing a
return on an investment of money at interest (and so as being a discount
arising from the money debt).
40
(6)
It does not matter for the purposes of subsection (1)(c) whether the discount is
of a revenue or capital nature.
(7)
This section is subject to section 485 (exclusion of debts where profits or losses
within Part 7 or 8).