Corporation Tax Bill

House of Commons

Session 2008 - 09
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Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 6 — Relationships treated as loan relationships etc
Chapter 6 — Alternative finance arrangements
243

(i)
entitlement to the redemption payment may (but need not) be capable
of being satisfied (whether or not at the option of the bond-issuer or the
bond-holder) by the issue or transfer of shares or other securities.
(3)
This section is subject to section 508.
508
Provision not at arm’s length: exclusion of arrangements from sections 503 to
5
507
(1)
Arrangements to which this section applies are not—
(a)
purchase and resale arrangements,
(b)
diminishing shared ownership arrangements,
(c)
deposit arrangements,
10
(d)
profit share agency arrangements, or
(e)
investment bond arrangements.
(2)
This section applies to arrangements if—
(a)
apart from this section they would be alternative finance arrangements,
(b)
paragraph 1(2) of Schedule 28AA to ICTA (provision not at arm’s
15
length) requires the profits and losses of a person who is a party to the
arrangements to be calculated for tax purposes as if the arm’s length
provision referred to in paragraph 1(2)(a) of that Schedule had been
made or imposed, rather than in accordance with the arrangements,
(c)
any person who is an affected person for the purposes of that Schedule
20
(“the affected person”) is entitled to—
(i)
relevant return in relation to the arrangements, or
(ii)
an amount representing relevant return in relation to them, and
(d)
the affected person is not subject—
(i)
to income tax or corporation tax, or
25
(ii)
to any corresponding tax under the law of a territory outside the
United Kingdom,

on the relevant return or the amount representing it.
(3)
In this section “relevant return”, in relation to arrangements, means any
amount which would be alternative finance return if the arrangements were
30
alternative finance arrangements.
(4)
For the meaning of “alternative finance return”, see sections 511 to 513.
Treatment as loan relationships
509
Application of Part 5: general
(1)
Part 5 applies in relation to alternative finance arrangements to which a
35
company (“A”) is a party as if the arrangements were a loan relationship to
which A is a party.
(2)
Accordingly, references in the Corporation Tax Acts to a loan relationship
include references to such alternative finance arrangements.
(3)
Section 510 makes further provision about the way in which Part 5 applies to
40
particular descriptions of alternative finance arrangements.

Corporation Tax Bill
Part 6 — Relationships treated as loan relationships etc
Chapter 6 — Alternative finance arrangements
244

510
Application of Part 5 to particular alternative finance arrangements
(1)
In the case of purchase and resale arrangements, Part 5 applies in relation to A
as if—
(a)
the first purchase price were the amount of a loan made by the first
purchaser to the second purchaser, and
5
(b)
alternative finance return payable under the arrangements were
interest payable on the loan.
(2)
In the case of diminishing shared ownership arrangements, Part 5 applies in
relation to A as if—
(a)
the consideration paid by the first owner for the acquisition of the first
10
owner’s beneficial interest (“the acquisition consideration”) were the
amount of a loan made by A to the eventual owner, and
(b)
alternative finance return payable under the arrangements were
interest payable on the loan.
(3)
In the case of deposit arrangements, Part 5 applies in relation to A as if—
15
(a)
any amount deposited under the arrangements were the amount of a
loan made by the depositor to the financial institution, and
(b)
alternative finance return payable under them were interest on the
loan.
(4)
In the case of profit share agency arrangements, Part 5 applies in relation to A
20
as if—
(a)
any amount provided under the arrangements were the amount of a
loan made by the principal to the agent, and
(b)
alternative finance return payable under them were interest on the
loan.
25
(5)
In the case of investment bond arrangements, Part 5 applies in relation to A as
if alternative finance return payable to or by A under them were interest
payable under the loan relationship.
(6)
In this section—
“the depositor” has the same meaning as in section 505 (see subsection (1)
30
of that section),
“the eventual owner” has the same meaning as in section 504 (see
subsection (1) of that section),
“the first owner” has the same meaning as in section 504 (see subsection
(1) of that section),
35
“the first purchaser” has the same meaning as in section 503 (see
subsection (1) of that section),
“the first purchase price” has the same meaning as in section 503 (see
subsection (3) of that section),
“the principal” has the same meaning as in section 506 (see subsection (1)
40
of that section), and
“the second purchaser” has the same meaning as in section 503 (see
subsection (1) of that section).
(7)
For the meaning of “alternative finance return”, see sections 511 to 513.

Corporation Tax Bill
Part 6 — Relationships treated as loan relationships etc
Chapter 6 — Alternative finance arrangements
245

Meaning of “alternative finance return”
511
Purchase and resale arrangements
(1)
In the case of purchase and resale arrangements, so much of the second
purchase price as is specified under the following provisions of this section is
alternative finance return for the purposes of this Part.
5
(2)
If under the arrangements the whole of the second purchase price is paid on
one day, the alternative finance return equals the amount by which the second
purchase price exceeds the first purchase price.
(3)
If under the arrangements the second purchase price is paid by instalments, the
alternative finance return in each instalment equals the appropriate amount.
10
(4)
The appropriate amount is an amount equal to the interest which would have
been included in the instalment on the assumptions in subsection (5).
(5)
The assumptions are that—
(a)
interest is payable on a loan by the first purchaser to the second
purchaser of an amount equal to the first purchase price,
15
(b)
the total interest payable on the loan is equal to the amount by which
the second purchase price exceeds the first purchase price,
(c)
the instalment is a part repayment of the principal of the loan with
interest, and
(d)
the loan is made on arm’s length terms and accounted for under
20
generally accepted accounting practice.
(6)
In this section expressions used in section 503 have the same meaning as in that
section.
512
Diminishing shared ownership arrangements
(1)
In the case of diminishing shared ownership arrangements, payments by the
25
eventual owner under the arrangements are alternative finance return for the
purposes of this Part, except so far subsection (2) or (3) applies to them.
(2)
This subsection applies to the payments so far as they amount to payments of
the kind described in section 504(1)(c) (payments to be made by the eventual
owner to the institution, amounting to the consideration paid for the
30
acquisition of the institution’s beneficial interest).
(3)
This subsection applies to the payments so far as they amount to payments in
respect of any arrangement fee or legal or other expenses which the eventual
owner is required under the arrangements to pay.
(4)
In this section “the eventual owner” has the same meaning as in section 504.
35
513
Other arrangements
(1)
In the case of deposit arrangements, amounts paid or credited as mentioned in
section 505(1)(c) by a financial institution under the arrangements (payments
to depositor out of profits resulting from use of money) are alternative finance
return for the purposes of this Part.
40
(2)
In the case of profit share agency arrangements, amounts paid or credited by a
financial institution in accordance with such an entitlement as is mentioned in

Corporation Tax Bill
Part 6 — Relationships treated as loan relationships etc
Chapter 6 — Alternative finance arrangements
246

section 506(1)(c) (principal’s entitlement to profits under the arrangements) are
alternative finance return for the purposes of this Part.
(3)
In the case of investment bond arrangements, the additional payments under
the arrangements are alternative finance return for the purposes of this Part.
(4)
In subsection (3) “additional payments” has the same meaning as in section 507
5
(see subsection (1)(d)(iii) of that section).
Treatment for other tax purposes
514
Exclusion of alternative finance return from consideration for sale of assets
(1)
If under purchase and resale arrangements an asset is sold by one party to the
arrangements to the other party, the alternative finance return is excluded in
10
determining the consideration for the sale and purchase of the asset for the
purposes of the Corporation Tax Acts (apart from section 503).
(2)
If under diminishing shared ownership arrangements an asset is sold by one
party to the arrangements to the other party, the alternative finance return is
excluded in determining the consideration for the sale and purchase of the
15
asset for the purposes of the Corporation Tax Acts (apart from section 504).
(3)
If under investment bond arrangements an asset is sold by one party to the
arrangements to the other party, the alternative finance return is excluded in
determining the consideration for the sale and purchase of the asset for the
purposes of the Corporation Tax Acts (apart from section 507).
20
(4)
Subsections (1) to (3) do not affect the operation of any provision of the
Corporation Tax Acts which provides that the consideration for a sale or
purchase is taken for any purpose to be an amount other than the actual
consideration.
515
Diminishing shared ownership arrangements not partnerships
25
Diminishing shared ownership arrangements are not treated as a partnership
for the purposes of the Corporation Tax Acts.
516
Treatment of principal under profit sharing agency arrangements
(1)
The principal under profit sharing agency arrangements is not treated for the
purposes of the Corporation Tax Acts as entitled to profits to which the agent
30
is entitled in accordance with section 506(1)(d).
(2)
And the agent under such arrangements is treated for those purposes as
entitled to those profits and the profits specified in section 506(1)(c).
(3)
In this section “the principal” and “the agent” are to be read in accordance with
section 506.
35
517
Treatment of bond-holder under investment bond arrangements
(1)
This section applies for the purposes of the Corporation Tax Acts and
irrespective of the position for other purposes.
(2)
The bond-holder under investment bond arrangements is not treated as having
a legal or beneficial interest in the bond assets.
40

Corporation Tax Bill
Part 6 — Relationships treated as loan relationships etc
Chapter 6 — Alternative finance arrangements
247

(3)
The bond-issuer under such arrangements is not treated as a trustee of the
bond assets.
(4)
Profits accruing to the bond-issuer in connection with the bond assets are
profits of the bond-issuer and not of the bond-holder (and do not arise to the
bond-issuer in a fiduciary or representative capacity).
5
(5)
Payments made by the bond-issuer by way of redemption payment or
additional payment are not made in a fiduciary or representative capacity.
(6)
The bond-holder is not entitled to relief for capital expenditure in connection
with the bond assets.
(7)
Expressions used in this section have the same meaning as in section 507.
10
518
Investment bond arrangements: treatment as securities
(1)
Investment bond arrangements are securities for the purposes of the
Corporation Tax Acts.
(2)
For those purposes—
(a)
a reference in an enactment to redemption is to be taken as a reference
15
to making the redemption payment, and
(b)
a reference in an enactment to interest is to be taken as a reference to
alternative finance return.
(3)
In subsection (2) “the redemption payment” has the same meaning as in section
507 (see subsection (1)(d)(ii) of that section).
20
519
Investment bond arrangements: other provisions
(1)
A bond-issuer is not a securitisation company for the purposes of section 83 of
FA 2005 (application of accounting standards to securitisation companies)
unless it is one as a result of arrangements which are not investment bond
arrangements.
25
(2)
For the purposes of section 417 of ICTA (close companies)—
(a)
a bond-holder is a loan creditor in respect of the bond-issuer, and
(b)
investment bond arrangements must be ignored in the application of
section 417(1)(d) of that Act.
(3)
For the purposes of Schedule 18 to ICTA (group relief)—
30
(a)
a bond-holder is a loan creditor in respect of the bond-issuer, and
(b)
paragraph 1(5)(b) of that Schedule must be ignored in determining
whether a person is an equity holder as a result of investment bond
arrangements.
520
Provision not at arm’s length: non-deductibility of relevant return
35
(1)
This section applies if arrangements to which section 508 (provision not at
arm’s length: exclusion of arrangements from sections 503 to 507) applies
would, but for that section, be alternative finance arrangements.
(2)
A company paying relevant return under the arrangements is not entitled to—
(a)
any deduction in calculating profits or gains for corporation tax
40
purposes, or

Corporation Tax Bill
Part 6 — Relationships treated as loan relationships etc
Chapter 6 — Alternative finance arrangements
248

(b)
any deduction against total profits,

in respect of the relevant return.
(3)
In this section “relevant return” has the same meaning as in section 508 (see
subsection (3) of that section).
Power to extend this Chapter to other arrangements
5
521
Power to extend this Chapter to other arrangements
(1)
The Treasury may by order amend the alternative finance provisions.
(2)
The amendments which may be made by such an order include—
(a)
the variation of provision already included in the alternative finance
provisions, and
10
(b)
the introduction into those provisions of new provision relating to
alternative finance arrangements.
(3)
In this section “alternative finance arrangements” means arrangements which
in the Treasury’s opinion—
(a)
equate in substance to a loan, deposit or other transaction of a kind that
15
generally involves the payment of interest, but
(b)
achieve a similar effect without including provision for the payment of
interest.
(4)
An order under subsection (1) may, in particular—
(a)
make provision of a kind similar to provision already made by the
20
alternative finance provisions,
(b)
make other provision about the treatment for the purposes of the
Corporation Tax Acts of arrangements to which the order applies,
(c)
make provision generally or only in relation to specified cases or
circumstances,
25
(d)
make different provision for different cases or circumstances, and
(e)
make incidental, supplemental, consequential and transitional
provision and savings.
(5)
An order making consequential provision under subsection (4)(e) may, in
particular, include provision amending a provision of the Tax Acts.
30
(6)
In this section “the alternative finance provisions” means—
(a)
this Chapter,
(b)
section 209(6A) of ICTA (meaning of distribution),
(c)
section 411ZA of ICTA (no relief where deduction of relevant return
under alternative finance arrangements disallowed), and
35
(d)
section 151F of TCGA 1992 (treatment of alternative finance
arrangements).

Corporation Tax Bill
Part 6 — Relationships treated as loan relationships etc
Chapter 7 — Shares with guaranteed returns etc
249

Chapter 7
Shares with guaranteed returns etc
Application of Part 5 to certain shares as rights under creditor relationship
522
Introduction to Chapter
(1)
This Chapter contains rules for Part 5 to apply in some cases as if at some times
5
in the accounting period of a company (“A”) which holds certain kinds of
shares in another company (“B”) the shares were rights under a creditor
relationship of A.
(2)
See, in particular—
(a)
section 523 (application of Part 5 to some shares as rights under creditor
10
relationship), and
(b)
sections 524 and 526 (which describe the two kinds of shares to which
the rules apply: shares subject to outstanding third party obligations
and non-qualifying shares).
(3)
In this Chapter references to the investing company are to A and references to
15
the issuing company are to B.
(4)
For the purposes of this Chapter a company is treated as continuing to hold a
share even though the share has been transferred to another person—
(a)
under a repo or stock lending arrangement, or
(b)
under a transaction which is treated as not involving any disposal as a
20
result of section 26 of TCGA 1992 (mortgages and charges not to be
treated as disposals).
(5)
But subsection (4) does not apply for the purposes of section 535 (shares
ceasing to be shares to which section 523 applies).
(6)
For the purposes of this Chapter, the definition of “share” in section 476(1) only
25
applies so far as it provides that “share” does not include a share in a building
society.
(7)
See section 116B of TCGA 1992 for the effect for the purposes of that Act of
shares beginning or ceasing to be shares to which section 523 applies.
523
Application of Part 5 to certain shares as rights under creditor relationship
30
(1)
This section applies in relation to the times in a company’s accounting period
when—
(a)
the company holds a share in another company, and
(b)
either—
(i)
section 524 (shares subject to outstanding third party
35
obligations) applies to the share, or
(ii)
that section does not so apply, but section 526 (non-qualifying
shares) does.
(2)
Part 5 applies as if at those times—
(a)
the share were rights under a creditor relationship of the investing
40
company, and