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Corporation Tax Bill


Corporation Tax Bill
Part 6 — Relationships treated as loan relationships etc
Chapter 10 — Repos

264

 

(6)   

For this purpose any arrangement makes other relevant provision if it makes

provision—

(a)   

for the receipt of any money or other asset from the borrower under

that arrangement for the purpose of enabling the other person to make

that subsequent purchase, or

5

(b)   

for the discharge of any liability to the borrower under that

arrangement for that purpose (whether by way of set off or otherwise).

(7)   

Condition E is that, in accordance with generally accepted accounting

practice—

(a)   

the subsequent buying of the securities or the other securities by the

10

borrower, or

(b)   

the receipt of the asset from the borrower, or the discharge of the

liability to the borrower, under the arrangement or other arrangement,

   

would extinguish the financial liability in respect of the advance recorded in

the accounts of the borrower.

15

(8)   

For the purposes of conditions A to E references to the borrower include a firm

of which the borrower is a member.

550     

Ignoring effect on borrower of sale of securities

(1)   

This section applies if a company (“the borrower”)—

(a)   

has a debtor repo or a debtor quasi-repo, or

20

(b)   

has a liability which is discharged under a relevant arrangement.

(2)   

A relevant arrangement is one—

(a)   

in relation to which conditions C and D in section 549 are met, and

(b)   

the main purpose or one of the main purposes of which is the obtaining

of a tax advantage.

25

(3)   

For the purposes of the charge to corporation tax in respect of income of the

borrower arising while the arrangement is in force, the Corporation Tax Acts

apply as if—

(a)   

the borrower held the securities which are initially sold for any period

for which the arrangement is in force, and

30

(b)   

the borrower did not receive in that period amounts representative of

income payable in respect of the securities.

(4)   

Subsection (3) is subject to subsections (5) and (6).

(5)   

No amount is to be charged to corporation tax as a result of subsection (3)(a)

unless—

35

(a)   

it is, in accordance with generally accepted accounting practice,

recognised in determining the borrower’s profit or loss for that or any

other period, or

(b)   

it is taken into account in calculating the amounts which are so

recognised.

40

(6)   

If the securities which are initially sold are overseas securities, the entitlement

of the borrower to double taxation relief in respect of any overseas dividend

payable in respect of those securities is determined as if—

(a)   

subsection (3) were omitted,

(b)   

the borrower received a payment of an amount which is representative

45

of that dividend,

 
 

Corporation Tax Bill
Part 6 — Relationships treated as loan relationships etc
Chapter 10 — Repos

265

 

(c)   

the payment were made under a requirement of the arrangement, and

(d)   

the payment were made on the date on which that dividend is payable.

(7)   

For the purposes of this section “double taxation relief” means any relief given

under or as a result of Part 18 of ICTA.

551     

Relief for borrower for finance charges in respect of the advance

5

(1)   

This section applies if a company (“the borrower”) has a debtor repo or a

debtor quasi-repo.

(2)   

The advance under the debtor repo or debtor quasi-repo is, in the case of the

borrower, to be treated for the purposes of Part 5 and this Part as a money debt

which—

10

(a)   

is owed by the borrower or, if the borrower is a member of a firm which

receives the advance, by the firm, and

(b)   

is owed to the person to whom the securities are initially sold.

(3)   

The arrangement is, in the case of the borrower, to be treated for the purposes

of Part 5 and this Part as a transaction for the lending of money from which that

15

debt is treated as arising for those purposes.

(4)   

Any amount which, in accordance with generally accepted accounting

practice, is recorded as a finance charge in respect of the advance in—

(a)   

the accounts of the borrower, or

(b)   

if the borrower is a member of a firm which receives the advance, the

20

accounts of the firm,

   

is treated for the purposes of Part 5, this Part and Part 15 of ITA 2007

(deduction of income tax at source) as interest payable under that debt.

(5)   

That interest is treated for those purposes as paid at the earlier of—

(a)   

the time when the relevant repurchase takes place, and

25

(b)   

the time when it becomes apparent that that repurchase will not take

place.

(6)   

For this purpose “the relevant repurchase” means—

(a)   

if the borrower has a debtor repo, the subsequent buying of the

securities or similar securities, and

30

(b)   

if the borrower has a debtor quasi-repo—

(i)   

the subsequent buying of the securities or other securities by the

borrower,

(ii)   

the receipt of the asset from the borrower, or

(iii)   

the discharge of the liability to the borrower,

35

   

as the case may be.

General provisions

552     

General provisions about arrangements

(1)   

For the purposes of this Chapter it does not matter whether or not provision of

any arrangement conferring a right or imposing an obligation on any person to

40

buy any securities is subject to any conditions.

 
 

Corporation Tax Bill
Part 6 — Relationships treated as loan relationships etc
Chapter 10 — Repos

266

 

(2)   

For the purposes of this Chapter an arrangement is in force from the time when

the securities are initially sold until the earlier of—

(a)   

the time when the relevant repurchase takes place, and

(b)   

the time when it becomes apparent that that repurchase will not take

place.

5

(3)   

In subsection (2) “the relevant repurchase” has the meaning given by

subsections (4) to (7).

(4)   

In the case of a creditor repo, it means the subsequent sale of the securities or

similar securities.

(5)   

In the case of a creditor quasi-repo, it means—

10

(a)   

the subsequent sale of the securities or other securities by the lender,

(b)   

the receipt of the asset from the lender, or

(c)   

the discharge of the liability to the lender,

   

as the case may be.

(6)   

In the case of a debtor repo, it means the subsequent buying of the securities or

15

similar securities.

(7)   

In the case of a debtor quasi-repo, it means—

(a)   

the subsequent buying of the securities or other securities by the

borrower,

(b)   

the receipt of the asset from the borrower, or

20

(c)   

the discharge of the liability to the borrower,

   

as the case may be.

553     

Persons buying or selling for others

(1)   

For the purposes of this Chapter, in any case where—

(a)   

a person (“A”) buys securities (or has a right or obligation to buy

25

securities), but

(b)   

the securities are (or are to be) held for the benefit of another person

(“B”),

   

B (not A) is treated as buying (or having the right or obligation to buy) the

securities.

30

(2)   

In any case where—

(a)   

a person (“C”) sells securities, but

(b)   

the proceeds of the sale are held for the benefit of another person (“D”),

   

D (not C) is treated as selling the securities.

554     

Power to modify this Chapter

35

(1)   

The Treasury may by regulations provide for all or any of the provisions of this

Chapter to apply with modifications in relation to—

(a)   

cases where section 555 (non-standard repo cases) applies, or

(b)   

cases involving redemption arrangements, or

(c)   

both of those cases.

40

(2)   

A case involves redemption arrangements if—

 
 

Corporation Tax Bill
Part 6 — Relationships treated as loan relationships etc
Chapter 10 — Repos

267

 

(a)   

arrangements, corresponding to those made in cases where a company

has a repo, are made in relation to securities that are to be redeemed in

the period after their sale, and

(b)   

the arrangements are such that a person (instead of having the right or

obligation to buy those securities, or similar or other securities, at any

5

subsequent time) has a right or obligation in respect of the benefits

which will result from the redemption.

(3)   

The regulations may make—

(a)   

different provision for different cases, and

(b)   

incidental, supplemental, consequential and transitional provision and

10

savings.

(4)   

In this section and section 555

“modifications” include exceptions and omissions, and

“repo” means—

(a)   

a debtor repo or debtor quasi-repo, or

15

(b)   

a creditor repo or creditor quasi-repo (including anything

treated, as a result of section 547, as a creditor repo for the

purposes of section 546).

555     

Cases where section 554 applies: non-standard repos

(1)   

The cases to which this section applies are where—

20

(a)   

a company has a repo,

(b)   

there has been a sale of the securities under the arrangement or

arrangements by reference to which the company has the repo, and

(c)   

any of conditions A to C is met in relation to the repo.

(2)   

Condition A is that those securities, or similar or other securities, are not

25

subsequently bought under the arrangement or arrangements.

(3)   

Condition B is that provision is made by or under an arrangement for different

or additional securities to be treated as, or as included with, securities which,

for the purposes of the subsequent purchase, are to represent those initially

sold.

30

(4)   

Condition C is that provision is made by or under an arrangement for

securities to be treated as not so included.

Interpretation

556     

Meaning of securities and similar securities

(1)   

In this Chapter “securities” (except in the definition of “overseas securities” in

35

section 559) means—

(a)   

shares, stock or other securities issued by—

(i)   

the government of the United Kingdom,

(ii)   

any public or local authority in the United Kingdom, or

(iii)   

any UK resident company or other UK resident body, or

40

(b)   

overseas securities.

(2)   

For the purposes of this Chapter securities are similar if they entitle their

holders to—

 
 

Corporation Tax Bill
Part 6 — Relationships treated as loan relationships etc
Chapter 10 — Repos

268

 

(a)   

the same rights against the same persons as to capital, interest and

dividends, and

(b)   

the same remedies for the enforcement of those rights.

(3)   

For the purposes of subsection (2) any difference in—

(a)   

the total nominal amounts of the respective securities,

5

(b)   

the form in which they are held, or

(c)   

the way in which they can be transferred,

   

is ignored.

557     

Meaning of person receiving an asset

For the purposes of this Chapter references to a person receiving any asset

10

include the person—

(a)   

obtaining the value of any asset directly or indirectly, or

(b)   

otherwise deriving any benefit from it directly or indirectly.

558     

Interpretation of accounting expressions

(1)   

In determining for the purposes of this Chapter whether an amount is recorded

15

as a financial asset or liability in respect of the advance, it is assumed that the

period of account in which the advance is received or made ended immediately

after the receipt or making of the advance.

(2)   

In its application for the purposes of this Chapter, section 309(1) applies as if

the reference to a company were a reference to a person.

20

559     

Minor definitions

In this Chapter—

“advance”—

(a)   

in the case of a creditor repo, has the same meaning as in section

543,

25

(b)   

in the case of a creditor quasi-repo, has the same meaning as in

section 544,

(c)   

in the case of a debtor repo, has the same meaning as in section

548, and

(d)   

in the case of a debtor quasi-repo, has the same meaning as in

30

section 549,

“arrangement” includes any agreement or understanding (whether or not

it is legally enforceable),

“creditor quasi-repo” has the meaning given by section 544,

“creditor repo” has the meaning given by section 543,

35

“debtor quasi-repo” has the meaning given by section 549,

“debtor repo” has the meaning given by section 548,

“discharge”, in relation to a liability, means the discharge of the liability in

whole or in part (and “discharged” is to be read accordingly),

“overseas dividend”, in relation to overseas securities, means any interest,

40

dividend or other annual payment payable in respect of the securities,

and

“overseas securities” means shares, stock or other securities issued by—

 
 

Corporation Tax Bill
Part 6 — Relationships treated as loan relationships etc
Chapter 11 — Investment life insurance contracts

269

 

(a)   

a government or public or local authority of a territory outside

the United Kingdom, or

(b)   

any other body of persons not resident in the United Kingdom.

Chapter 11

Investment life insurance contracts

5

Introduction

560     

Introduction to Chapter

(1)   

This Chapter makes provision about investment life insurance contracts to

which relevant companies are party.

(2)   

See, in particular—

10

(a)   

sections 562 to 565 (which make provision about treating the contracts

as creditor relationships in relation to those companies for the purposes

of Part 5), and

(b)   

sections 566 to 569 (which make provision for cases where the relevant

company was a party to the contract before the beginning of the

15

company’s first accounting period beginning on or after 1 April 2008).

(3)   

In this Chapter “relevant company” means a company which is not a life

insurance company.

(4)   

In subsection (3) “life insurance company” means—

(a)   

an insurance company (as defined in section 431(2) of ICTA) which

20

carries on long-term business (as defined in that section), or

(b)   

a friendly society which would be such an insurance company but for

the words “(other than a friendly society)” in the definition of

“insurance company” in that section.

(5)   

For the meaning of “investment life insurance contract”, see section 561.

25

561     

Meaning of “investment life insurance contract”

(1)   

In this Chapter “investment life insurance contract” means—

(a)   

a policy of life insurance which has, or is capable of acquiring, a

surrender value,

(b)   

a contract for a purchased life annuity, or

30

(c)   

a capital redemption policy,

   

other than a relevant excluded contract.

(2)   

In subsection (1)—

“capital redemption policy” means a contract made in the course of capital

redemption business (as defined in section 431(2ZF) of ICTA),

35

“purchased life annuity” means an annuity—

(a)   

granted for consideration in money or money’s worth in the

ordinary course of a business of granting annuities on human

life, and

 
 

Corporation Tax Bill
Part 6 — Relationships treated as loan relationships etc
Chapter 11 — Investment life insurance contracts

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(b)   

payable for a term ending at a time ascertainable only by

reference to the end of a human life (whether or not the annuity

may in some circumstances end before or after the life), and

“relevant excluded contract” means—

(a)   

an investment life insurance contract under a registered

5

pension scheme,

(b)   

an investment life insurance contract purchased with sums or

assets held for the purposes of a registered pension scheme, or

(c)   

a policy of life insurance issued in respect of an insurance made

before 14 March 1989.

10

(3)   

A policy of life insurance issued in respect of an insurance made before 14

March 1989 is treated for the purposes of this Chapter as issued in respect of

one made on or after that date if it is varied on or after that date so as—

(a)   

to increase the benefits secured, or

(b)   

to extend the term of the insurance.

15

(4)   

For the purposes of subsection (3) any exercise of rights conferred by a policy

is to be regarded as a variation of it.

Investment life assurance contracts treated as creditor relationships

562     

Contract to be loan relationship

(1)   

If a relevant company is a party to an investment life insurance contract, for the

20

purposes of Part 5 (loan relationships) the contract is, in relation to the

company, a creditor relationship of the company.

(2)   

Subsection (1) is subject to subsection (4).

(3)   

Subsection (4) applies if—

(a)   

the amount or value of a lump sum payable under an investment life

25

contract by reason of death or the onset of critical illness, exceeds

(b)   

the surrender value of the contract immediately before the time when

the lump sum becomes payable.

(4)   

If this subsection applies, that excess is not to be brought into account as a

credit under Part 5 representing a profit from a related transaction arising as a

30

result of the lump sum becoming payable.

563     

Increased non-trading credits for BLAGAB and EEA taxed contracts

(1)   

This section applies if—

(a)   

as a result of section 562 the relevant company is required to bring into

account for an accounting period a non-trading credit representing a

35

profit from a related transaction, and

(b)   

the investment life insurance contract is—

(i)   

a BLAGAB contract, or

(ii)   

a contract which is subject to a relevant comparable EEA tax

charge.

40

(2)   

For the meaning of “BLAGAB contract” and of a contract being subject to a

relevant comparable EEA tax charge, see section 564.

(3)   

The non-trading credit is treated as increased by the relevant amount.

 
 

 
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