Corporation Tax Bill

House of Commons

Session 2008 - 09
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Corporation Tax Bill

Corporation Tax Bill
Schedule 2 — Transitionals and savings
Part 8 — Loan relationships
759

Avoidance relying on continuity of treatment provisions: transactions before 16 May 2008
67
Section 347 (disapplication of Chapter 4 of Part 5 where transferor party to
avoidance) does not have effect in relation to transactions taking place, or a
series of transactions of which the first takes place, before 16 May 2008.
Disposals for consideration not fully recognised by accounting practice: disposals before 16
5
May 2008
68
Section 455 (disposals for consideration not fully recognised by accounting
practice) does not have effect in relation to disposals before 16 May 2008.
5½% Treasury Stock 2008-2012 not redeemed before 6 April 2009
69    (1)
This paragraph applies if any loan relationship of a company—
10
(a)
is represented by any 5½% Treasury Stock 2008-2012, and
(b)
is one to which the company is a party otherwise than in the course
of activities that form an integral part of a trade it carries on.
      (2)
No amounts fall to be brought into account for the purposes of Part 5 in
respect of the loan relationship unless they relate to interest.
15
References to Companies Act 2006
70
Until section 658 of the Companies Act 2006 (c. 46) (rule against limited
company acquiring own shares) comes into force, references to that section
in sections 421(4)(g)(ii) and 431(7)(b) have effect as if they were references to
section 143 of the Companies Act 1985 (c. 6).
20
Prospective repeal of provisions concerning exchange gains and losses from loan relationships
71    (1)
The following provisions (which rewrite provisions prospectively repealed
by F(No.2)A 2005 or are related to such provisions) cease to have effect—
(a)
section 306(2)(e) (introduction to section 328),
(b)
section 310(5) (power to make regulations about recognised
25
amounts: exception for exchange gains and losses),
(c)
section 328 (exchange gains and losses),
(d)
section 384 (treatment of exchange gains and losses),
(e)
section 450(6) (meaning of “corresponding debtor relationship”:
disregard of section 328(2) to (7)), and
30
(f)
section 151F of TCGA 1992 (exchange gains and losses from loan
relationships: regulations).
      (2)
For the power to make an order bringing this paragraph into force, see
section 1329(3).

Corporation Tax Bill
Schedule 2 — Transitionals and savings
Part 9 — Relationships treated as loan relationships
760

Part 9
Relationships treated as loan relationships
Relevant non-lending relationships: discounts accruing and profits arising before 16 March
2005
72    (1)
None of the following is to be brought into account for the purposes of Part
5
5 as a result of any of the provisions specified in sub-paragraph (2) or any
reference to that provision in any other provision—
(a)
credits in respect of a discount arising from a money debt, so far as
the discount accrued before 16 March 2005,
(b)
credits in respect of profits arising as mentioned in 481(3)(c) or (5)(c)
10
where the related transaction took place before that date,
(c)
debits in respect of any impairment arising in respect of a discount
arising from a money debt, so far as the discount accrued before that
date,
(d)
credits in respect of any reversal of any such impairment, so far as the
15
discount accrued before that date.
      (2)
The provisions are—
(a)
section 480 (relevant non-lending relationships involving discounts),
(b)
section 481(3)(c) and (5) to (8) (application of Part 5 to relevant non-
lending loan relationships), and
20
(c)
section 482(2) (miscellaneous rules about amounts to be brought into
account because of Chapter 2 of Part 6).
      (3)
This paragraph is to be read as if it were in Chapter 2 of Part 6.
Alternative finance arrangements entered into before 6 April 2005
73    (1)
Chapter 6 of Part 6 (alternative finance arrangements) only applies to
25
alternative finance arrangements entered into before 6 April 2005 (“pre-6
April 2005 arrangements”) if they are relevant deposit arrangements and
then only so far as provided by this paragraph.
      (2)
In this paragraph “relevant deposit arrangements” means deposit
arrangements under which alternative finance return is payable on or after
30
6 April 2005.
      (3)
For the purposes of Part 5 (loan relationships) the loan that is treated under
section 509 (application of Part 5: general) as made by or to a company that
is party to the pre-6 April 2005 arrangements is a loan made on 6 April 2005
of an amount equal to the notional carrying value of the asset or liability
35
representing the arrangements.
      (4)
For the purposes of sub-paragraph (3) that notional carrying value is the
amount that would have been the carrying value of the asset or liability in
the accounts of the company (prepared in accordance with generally
accepted accounting practice) if a period of account had ended immediately
40
before 6 April 2005.
Profit share agency arrangements entered into before 1 April 2006
74    (1)
Chapter 6 of Part 6 (alternative finance arrangements) only applies to profit
share agency arrangements entered into before 1 April 2006 (“pre-1 April

Corporation Tax Bill
Schedule 2 — Transitionals and savings
Part 9 — Relationships treated as loan relationships
761

2006 arrangements”) if they are relevant profit share agency arrangements
and then only so far as provided by this paragraph.
      (2)
In this paragraph “relevant profit share agency arrangements” means profit
share agency arrangements under which alternative finance return is
payable on or after 1 April 2006.
5
      (3)
For the purposes of Part 5 (loan relationships) the loan that is treated under
section 509 (application of Part 5: general) as made by or to a company that
is party to the pre-1 April 2006 arrangements is a loan made on 1 April 2006
of an amount equal to the notional carrying value of the asset or liability
representing the arrangements.
10
      (4)
For the purposes of sub-paragraph (3) that notional carrying value is the
amount that would have been the carrying value of the asset or liability in
the accounts of the company (prepared in accordance with generally
accepted accounting practice) if a period of account had ended immediately
before 1 April 2006.
15
Investment bond arrangements entered into before 1 April 2007
75    (1)
Chapter 6 of Part 6 (alternative finance arrangements) only applies to
investment bond arrangements entered into before 1 April 2007 (“pre-1
April 2007 arrangements”) if they are relevant investment bond
arrangements and then only so far as provided by this paragraph.
20
      (2)
In this paragraph “relevant investment bond arrangements” means
investment bond arrangements under which alternative finance return is
payable on or after 1 April 2007.
      (3)
For the purposes of Part 5 (loan relationships) the loan that is treated under
section 509 (application of Part 5: general) as made by or to a company that
25
is party to the pre-1 April 2007 arrangements is a loan made on 1 April 2007
of an amount equal to the notional carrying value of the asset or liability
representing the arrangements.
      (4)
For the purposes of sub-paragraph (3) that notional carrying value is the
amount that would have been the carrying value of the asset or liability in
30
the accounts of the company (prepared in accordance with generally
accepted accounting practice) if a period of account had ended immediately
before 1 April 2007.
Shares with guaranteed returns: redeemable shares where public issue before 22 March 2006
76
In relation to any case where the public issue (within the meaning of section
35
530(4) and (5)) is before 22 March 2006 for “7 days” in subsections (4)(b) and
(5)(a) of section 530 (the redemption return condition: excepted shares)
substitute “24 hours”.
Shares with guaranteed returns: income-producing assets for the increasing value condition
77
In relation to any time before 16 May 2008, section 527(4) (meaning of
40
“income-producing assets” for the purposes of the increasing value
condition) applies with the substitution for paragraph (c) of the following

Corporation Tax Bill
Schedule 2 — Transitionals and savings
Part 10 — Derivative contracts
762

paragraph—
“(c)
any share as respects which the redemption return condition
is met or would be met apart from section 529(1)(c) (excepted
shares),”.
Repo transactions and stock lending arrangements before 1 October 2007
5
78    (1)
Chapter 10 of Part 6 (repos) does not apply in relation to an arrangement
which came into force before 1 October 2007.
      (2)
The repeal by this Act of paragraph 15 of Schedule 9 to FA 1996 (repo
transactions and stock-lending) does not affect its application in relation to
cases where there is—
10
(a)
an arrangement to which Chapter 10 of Part 6 would apply if the
arrangement had not come into force before 1 October 2007,
(b)
a stock lending arrangement (within the meaning of section 263B(1)
of TCGA 1992), which came into force before that date and under
which the lender transfers securities to the borrower otherwise than
15
by way of sale, or
(c)
any other disposal before that date.
      (3)
But that paragraph applies with the substitution—
(a)
for references to Chapter 2 of Part 4 of FA 1996 of references to Part
5 of this Act, and
20
(b)
for the reference in sub-paragraph (5) to section 84 of that Act of a
reference to section 304 of this Act.
Part 10
Derivative contracts
Interpretation
25
79
Expressions used in this Part of this Schedule and in Part 7 of this Act have
the same meaning as in Part 7.
Extended meaning of reference in section 591(6)(b)
80
The reference in section 591(6)(b) (condition E) to the provisions in section
591(7) includes a reference to paragraphs 82 and 86 of this Schedule.
30
Disapplication of section 645
81
Section 645 (creditor relationships: embedded derivatives which are
options) does not apply to a derivative contract of a company for an
accounting period if the asset representing the creditor relationship is an
asset in relation to which paragraph 9(2) of Schedule 10 to FA 2004 has effect.
35
Existing assets representing creditor relationships: options
82    (1)
This paragraph applies if section 645 would apply to a derivative contract of
a company for an accounting period but for the fact that the asset
representing the creditor relationship is an asset in relation to which
paragraph 9(2) of Schedule 10 to FA 2004 has effect.
40

Corporation Tax Bill
Schedule 2 — Transitionals and savings
Part 10 — Derivative contracts
763

      (2)
Section 574 (non-trading credits and debits to be brought into account under
Part 5) does not apply to the credits and debits which are given in relation to
the derivative contract for the accounting period by section 595.
      (3)
The asset representing the creditor relationship is treated for corporation tax
purposes as not being a qualifying corporate bond.
5
      (4)
For the purposes of corporation tax on chargeable gains, the amount or
value of the consideration for any disposal by the company of the asset
representing the creditor relationship is reduced by so much of that amount
or value as, on a just and reasonable apportionment, relates to interest
within sub-paragraph (5).
10
      (5)
Interest is within this sub-paragraph if—
(a)
it falls to be brought into account under Part 5 of this Act (loan
relationships) as accruing to any company at any time, and
(b)
in consequence of, or of the terms of, the disposal, it is not paid or
payable to the company to which it is treated for the purposes of that
15
Part as accruing.
      (6)
For the purposes of corporation tax on chargeable gains, the amount or
value of the consideration for any disposal by the company of the asset
mentioned in sub-paragraph (4)—
(a)
is increased by the addition of any relevant exchange losses, and
20
(b)
is (after giving effect to any such increase) reduced (but not below
nil) by the deduction of any relevant exchange gains.
      (7)
If the amount of the relevant exchange gains falling to be deducted under
sub-paragraph (6)(b) exceeds the amount required to reduce the amount or
value of the consideration to nil, the excess is treated for the purposes of
25
section 38(1)(c) of TCGA 1992 as incidental costs of the disposal of the asset
mentioned in sub-paragraph (4).
83    (1)
This paragraph applies for the purposes of paragraph 82.
      (2)
“Relevant exchange gains” means an amount within sub-paragraph (4) or
(5).
30
      (3)
“Relevant exchange losses” means an amount which would be within sub-
paragraph (4) or (5) if references in those sub-paragraphs to exchange gains
were read as references to exchange losses.
      (4)
An amount is within this sub-paragraph if it is the amount of any exchange
gains in respect of the asset mentioned in paragraph 82(4) which are brought
35
into account under Part 5 of this Act (loan relationships) by the company for
an accounting period throughout which the company holds that asset.
      (5)
For any accounting period not within sub-paragraph (4) in which the
company holds that asset, an amount is within this sub-paragraph if it is an
amount which, on a just and reasonable apportionment, represents so much
40
of the amount of any exchange gains brought into account under that Part in
respect of that asset by the company for that period as is referable to the part
of the period for which the company holds that asset.
84    (1)
This paragraph applies if—
(a)
there has been a reorganisation for the purposes of sections 126 to 132
45
of TCGA 1992, and

Corporation Tax Bill
Schedule 2 — Transitionals and savings
Part 10 — Derivative contracts
764

(b)
for the purposes of those sections, the asset mentioned in paragraph
82(4) is treated as the original shares.
      (2)
The reference in paragraph 82(4) to the disposal of that asset is a reference to
the disposal of the asset which, as a result of the reorganisation, has become
the new holding for the purposes of those sections.
5
Disapplication of section 648
85
Section 648 (creditor relationships: embedded derivatives which are exactly
tracking contracts for differences) does not apply to a derivative contract of
a company for an accounting period if the asset representing the creditor
relationship is an asset in relation to which paragraph 11(2) of Schedule 10
10
to FA 2004 has effect.
Existing assets representing creditor relationships: contracts for differences
86    (1)
This paragraph applies if section 648 would apply to a derivative contract of
a company for an accounting period but for the fact that the asset
representing the creditor relationship is an asset in relation to which
15
paragraph 11(2) of Schedule 10 to FA 2004 has effect.
      (2)
Section 574 (non-trading credits and debits to be brought into account under
Part 5) does not apply to the credits and debits which are given in relation to
the derivative contract for the accounting period by section 595.
      (3)
The asset representing the creditor relationship is treated for corporation tax
20
purposes as not being a qualifying corporate bond.
      (4)
For the purposes of corporation tax on chargeable gains, the amount or
value of the consideration for any disposal by the company of the asset
representing the creditor relationship is reduced by so much of that amount
or value as, on a just and reasonable apportionment, relates to interest
25
within sub-paragraph (5).
      (5)
Interest is within this sub-paragraph if—
(a)
it falls to be brought into account under Part 5 of this Act (loan
relationships) as accruing to any company at any time, and
(b)
in consequence of, or of the terms of, the disposal, it is not paid or
30
payable to the company to which it is treated for the purposes of that
Part as accruing.
87    (1)
This paragraph applies if—
(a)
there has been a reorganisation for the purposes of sections 126 to 132
of TCGA 1992, and
35
(b)
for the purposes of those sections, the asset mentioned in paragraph
86(4) is treated as the original shares.
      (2)
The reference in paragraph 86(4) to the disposal of that asset is a reference to
the disposal of the asset which, as a result of the reorganisation, has become
the new holding for the purposes of those sections.
40
Disapplication of section 658
88    (1)
Section 658 (chargeable gain or allowable loss treated as accruing) does not
apply to a derivative contract of a company for an accounting period if the
liability representing the debtor relationship was owed by the company

Corporation Tax Bill
Schedule 2 — Transitionals and savings
Part 10 — Derivative contracts
765

immediately before its first accounting period to begin on or after 1 January
2005.
      (2)
If section 658 would apply to a derivative contract for an accounting period
but for sub-paragraph (1), section 574 (non-trading credits and debits to be
brought into account under Part 5) does not apply to the credits and debits
5
which are given in relation to the derivative contract for the accounting
period by section 595.
Disapplication of section 661
89
Section 661 (contract which becomes derivative contract) does not apply if
the relevant contract became a derivative contract before 30 December 2006.
10
Disapplication of section 666
90
Section 666 (allowable loss treated as accruing) does not apply to a company
if the liability representing the debtor relationship was owed by the
company immediately before its first accounting period to begin on or after
1 January 2005.
15
Contracts which became derivative contracts on 16 March 2005
91    (1)
This paragraph applies in relation to a company if conditions A, B and C are
met in relation to a relevant contract.
      (2)
Condition A is that the company was a party to the relevant contract both
immediately before and at 3.00pm on 16 March 2005.
20
      (3)
Condition B is that the relevant contract—
(a)
was not a derivative contract immediately before 3.00pm on that
date, but
(b)
has been a derivative contract as from that time.
      (4)
Condition C is that the relevant contract was a chargeable asset immediately
25
before that time.
      (5)
If the company ceases to be a party to the contract, it must bring into account
for the accounting period in which it so ceases the amount of any chargeable
gain or allowable loss which would have been treated as accruing to it on the
assumptions in sub-paragraph (6).
30
      (6)
Those assumptions are that—
(a)
the company disposed of the contract immediately before 3.00pm on
16 March 2005, and
(b)
the disposal was for consideration of an amount equal to the value (if
any) given to the contract in the accounts of the company at the end
35
of the company’s accounting period immediately before its first
accounting period—
(i)
beginning on or after 1 January 2005, and
(ii)
ending on or after 16 March 2005.
Contracts which became derivative contracts on 28 July 2005
40
92    (1)
This paragraph applies in relation to a company if conditions A, B and C are
met in relation to a relevant contract.