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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,

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(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

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(“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

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(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

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company, and

 
 

 
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