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 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
270

(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.